UFCS 10-K Fiscal year ended Dec. 31, 2020

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

Nature of Business

United Fire Group, Inc. ("UFG", "United Fire", the "Registrant", the "Company", "we", "us", or "our") and its consolidated subsidiaries and affiliates are engaged in the business of writing property and casualty insurance through a network of independent agencies. Our insurance company subsidiaries are licensed as a property and casualty insurer in 49 states, plus the District of Columbia.

Discontinued Operations

On September 18, 2017, the Company signed a definitive agreement to sell its subsidiary, United Life Insurance Company ("United Life"), to Kuvare US Holdings, Inc. ("Kuvare") and on March 30, 2018, the sale closed. As a result, our life insurance business, previously a separate segment, has been reported as discontinued operations in the Consolidated Statements of Income and Comprehensive Income and Consolidated Statements of Cash Flows for the twelve month period ended December 31, 2018 in this Form 10-K. Subsequent to the announcement of this sale, our continuing operations were reported as one business segment. All current and prior periods reflected in this Form 10-K have been presented as continuing and discontinued operations, unless otherwise noted. For more information, refer to Note 17 "Discontinued Operations."

Principles of Consolidation

The accompanying Consolidated Financial Statements include United Fire and its wholly owned subsidiaries: United Fire & Casualty Company, United Real Estate Holdings, LLC, Addison Insurance Company, Lafayette Insurance Company, United Fire & Indemnity Company, United Fire Lloyds, UFG Specialty Insurance Company, Financial Pacific Insurance Company, Franklin Insurance Company, Mercer Insurance Company, Mercer Insurance Company of New Jersey, Inc, McIntyre Cedar UK Limited. Mercer Insurance Company and McIntyre Cedar Corporate Member LLP.

United Fire Lloyds, an affiliate of United Fire & Indemnity Company, is organized as a Texas Lloyds plan, which is an aggregation of underwriters who, under a common name, engage in the business of insurance through a corporate attorney-in-fact. United Fire Lloyds is financially and operationally controlled by United Fire & Indemnity Company, its corporate attorney-in-fact, pursuant to three types of agreements: trust agreements between United Fire & Indemnity Company and certain individuals who agree to serve as trustees; articles of agreement among the trustees who agree to act as underwriters to establish how the Lloyds plan will be operated; and powers of attorney from each of the underwriters appointing a corporate attorney-in-fact, who is authorized to operate the Lloyds plan. Because United Fire & Indemnity Company can name the trustees, the Lloyds plan is perpetual, subject only to United Fire & Indemnity Company's desire to terminate it.

United Fire & Indemnity Company provides all of the statutory capital necessary for the formation of the Lloyds plan by contributing capital to each of the trustees. The trust agreements require the trustees to become underwriters of the Lloyds plan, to contribute the capital to the Lloyds plan, to sign the articles of agreement and to appoint the attorney-in-fact. The trust agreements also require the trustees to pay to United Fire & Indemnity Company all of the profits and benefits received by the trustees as underwriters of the Lloyds plan, which means that United Fire & Indemnity Company has the right to receive 100 percent of the gains and profits from the Lloyds plan. The trustees serve at the pleasure of United Fire & Indemnity Company, which may remove a trustee and replace that trustee at any time. Termination of a trustee must be accompanied by the resignation of the trustee as an underwriter, so that the trustee can obtain the capital contribution from the Lloyds plan to reimburse United Fire & Indemnity Company. By retaining the ability to terminate trustees, United Fire & Indemnity Company possesses the ability to name and remove the underwriters.

---

United Real Estate Holdings, LLC, formed in 2013, is a wholly owned subsidiary of United Fire & Casualty Company and is organized as an Iowa limited liability corporation, an unincorporated association formed for the purpose of holding United Fire & Casualty Company's ownership in commercial real estate.

Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared on the basis of U.S. generally accepted accounting principles ("GAAP"), which differ in some respects from those followed in preparing our statutory reports to insurance regulatory authorities. Our stand-alone subsidiary financial statements submitted to insurance regulatory authorities are presented on the basis of accounting practices prescribed or permitted by the insurance departments of the states in which we are domiciled ("statutory accounting principles").

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statement categories that are most dependent on management estimates and assumptions include: investments; deferred policy acquisition costs; reinsurance receivables and recoverables; goodwill impairment; losses and loss settlement expenses; and pension and post-retirement benefit obligations.

Continuing Operations - Property and Casualty Insurance Business

Premiums written are deferred and recorded as earned premium on a daily pro rata basis over the terms of the respective policies. Unearned premium reserves are established for the portion of premiums written applicable to the unexpired term of insurance policies in force. Premiums receivable are presented net of an estimated allowance for doubtful accounts, which is based on a periodic evaluation of the aging and collectability of amounts due from agents and policyholders.

To establish loss and loss settlement expense reserves, we make estimates and assumptions about the future development of claims. Actual results could differ materially from those estimates, which are subjective, complex and inherently uncertain. When we establish and adjust reserves, we do so given our knowledge at the time of the circumstances and facts of known claims. To the extent that we have overestimated or underestimated our loss and loss settlement expense reserves, we adjust the reserves in the period in which such adjustment is determined.

We record our best estimate of reserves for claim litigation that arises in the ordinary course of business. We consider all of our pending litigation as of December 31, 2020 to be ordinary, routine and incidental to our business.

Discontinued Operations - Life Insurance Business

Our whole life and term insurance (i.e., traditional business) premiums are reported as earned when due and benefits and expenses are associated with premium income in order to result in the recognition of profits over the lives of the related contracts. Income annuities with life contingencies (single premium immediate annuities and supplementary contracts) have premium recorded and any related expense charge fees recorded as income and expense when the contract is issued. On universal life and deferred annuity policies (i.e., non-traditional business), income and expenses are reported when charged and credited to policyholder account balances in order to result in recognition of profits over the lives of the related contracts. We accomplish this by means of a provision for future policy benefits and the deferral and subsequent amortization of policy acquisition costs.

Reinsurance

Premiums earned and losses and loss settlement expenses incurred are reported net of reinsurance ceded. Ceded insurance business is accounted for on a basis consistent with the original policies issued and the terms of the reinsurance contracts. Refer to Note 4 "Reinsurance" for a discussion of our reinsurance activities.

---

Investments

Investments in fixed maturities include bonds and redeemable preferred stocks. Our investments in available-for-sale fixed maturities and trading securities are recorded at fair value.

Investments in equity securities, which include common and non-redeemable preferred stocks are recorded at fair value with changes in value recorded as a component of income. Changes in unrealized appreciation and depreciation, with respect to available-for-sale fixed maturities are reported as a component of accumulated other comprehensive income, net of applicable deferred income taxes, in stockholders' equity. Changes in unrealized appreciation and depreciation, with respect to trading securities, are reported as a component of income.

Other long-term investments consist primarily of our interests in limited liability partnerships that are recorded on the equity method of accounting. Included in investments at December 31, 2020 and 2019, are securities on deposit with, or available to, various regulatory authorities as required by law, with fair values of $ 21,628 and $ 20,816 respectively.

We review all of our investment holdings for appropriate valuation on an ongoing basis. Refer to Note 2 "Summary of Investments" for a discussion of our accounting policy for impairment recognition.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash, money market accounts, and non-negotiable certificates of deposit with original maturities of three months or less.

In 2020, 2019, and 2018, we made cash payments for income taxes of $ 138 , $ 1,575 and $ 29,071 , respectively. In 2020, we did no t receive a federal tax refund. We received federal tax refunds of $ 5,401 and $ 1,503 in 2019 and 2018, respectively, which resulted from the utilization of our net operating losses and net capital loss carryforwards and carrybacks. We made no interest payments in 2020, 2019 and 2018 . These payments exclude interest credited to policyholders' accounts.

Deferred Policy Acquisition Costs ("DAC")

Certain costs associated with underwriting new business (primarily commissions, premium taxes and variable underwriting and policy issue expenses associated with successful acquisition efforts) are deferred. The following table is a summary of the components of DAC that are reported in the accompanying Consolidated Financial Statements.

---

Continuing Operations - Property and Casualty Insurance			2020						2019						2018
Recorded asset at beginning of year			$	94,292					$	92,796					$	88,102
Underwriting costs deferred			203,054						218,195						210,926
Amortization of deferred policy acquisition costs			( 210,252 )						( 216,699 )						( 206,232 )
Recorded asset at end of year			$	87,094					$	94,292					$	92,796
Discontinued Operations - Life Insurance
Recorded asset at beginning of year			$	—					$	—					$	71,151
Underwriting costs deferred			—						—						1,376
Amortization of deferred policy acquisition costs			—						—						( 1,895 )
			$	—					$	—					$	70,632
Change in "shadow" deferred policy acquisition costs			—						—						7,274
Sale of discontinued operations			—						—						( 77,906 )
Recorded asset at end of year			$	—					$	—					$	—
Total
Recorded asset at beginning of year			$	94,292					$	92,796					$	159,253
Underwriting costs deferred			203,054						218,195						212,302
Amortization of deferred policy acquisition costs			( 210,252 )						( 216,699 )						( 208,127 )
			$	87,094					$	94,292					$	163,428
Change in "shadow" deferred policy acquisition costs			—						—						7,274
Sale of discontinued operations			—						—						( 77,906 )
Recorded asset at end of year			$	87,094					$	94,292					$	92,796

Our continuing operations property and casualty insurance DAC is amortized as premium revenue is recognized. The method followed in computing DAC limits the amount of such deferred costs to their estimated realizable value. This takes into account the premium to be earned, losses and loss settlement expenses expected to be incurred and certain other costs expected to be incurred as the premium is earned. This calculation is performed by line of business in a manner consistent with how the policies are currently being marketed and managed.

For the discontinued operations traditional life insurance policies, DAC was amortized to income over the premium-paying period in proportion to the ratio of the expected annual premium revenue to the expected total premium revenue. Expected premium revenue and gross profits are based on the same mortality and withdrawal assumptions used in determining future policy benefits. These assumptions are not revised after policy issuance unless the recorded DAC asset is deemed to be unrecoverable from future expected profits.

For the discontinued operations non-traditional life insurance policies, DAC is amortized over the anticipated terms in proportion to the ratio of the expected annual gross profits to the total expected gross profits. Changes in the amount or timing of expected gross profits result in adjustments to the cumulative amortization of these costs. The effect on amortization of DAC for revisions to estimated gross profits is reported in earnings in the period the estimated gross profits are revised.

Property, Equipment and Depreciation

Property and equipment is presented at cost less accumulated depreciation. The following table is a summary of the components of the property and equipment that are reported in the accompanying Consolidated Financial Statements.

---

			2020			2019
Real estate:
Land			$	2,974		$	2,982
Buildings			85,776			83,360
Furniture and fixtures			6,058			7,253
Computer equipment and software			35,066			23,394
Airplane			—			—
Total property and equipment			$	129,874		$	116,989

Expenditures for maintenance and repairs on property and equipment are generally expensed as incurred. We periodically review these assets for impairment whenever events or changes in business circumstances indicate that the carrying value of the underlying asset may not be recoverable. A loss would be recognized if the estimated fair value of the asset were less than its carrying value.

Depreciation is computed primarily by the straight-line method over the following estimated useful lives:

			Useful Life
Computer equipment and software			Three years
Furniture and fixtures			Seven years
Leasehold improvements			Shorter of the lease term or useful life of the asset
Real estate			Seven years to thirty-nine years
Airplane			Five years

Depreciation expense totaled $ 5,947 , $ 10,482 and $ 4,455 for 2020, 2019 and 2018, respectively.

Goodwill and Other Intangible Assets

Goodwill assets arise as a result of business combinations and consist of the excess of the fair value of consideration paid over the tangible and intangible assets acquired and liabilities assumed. All of our goodwill assets relate to the acquisition of Mercer Insurance Group, Inc. on March 28, 2011. We evaluate goodwill assets for impairment at least on an annual basis or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of goodwill assets may exceed their implied fair value. Any impairment is recognized in the period that the impairment is identified. During the third quarter of 2020, we completed our annual quantitative analysis of goodwill. As a result of the quantitative analysis, we impaired the remaining balance of our goodwill of $ 15,091 as of September 30, 2020, based on the following factors: (i) disruptions in the equity markets, specifically for property and casualty insurance companies, as a result of the COVID-19 pandemic and due to recent weather related catastrophes; (ii) recent elevated commercial auto loss ratios and (iii) the fair value of our stock trading significantly below book value. The Company used a weighting of the income and market approaches to determine the fair value of the reporting unit.

Our other intangible assets, which consist primarily of agency relationships, trade names, state insurance licenses, and software, are being amortized by the straight-line method over periods ranging from 2 years to 15 years, with the exception of state insurance licenses, which are indefinite-lived and not amortized. In 2020, 2019 and 2018 we performed a qualitative impairment assessment of our indefinite lived intangible assets. As a result of these assessments, we did not recognize an impairment charge on our intangible assets in 2020, 2019 and 2018. Amortization expense totaled $ 709 , $ 709 and $ 719 in 2020, 2019 and 2018, respectively.

---

Long term debt

The Company executed a private placement debt transaction on December 15, 2020 between United Fire & Casualty Company ("UF&C"), and Federated Mutual Insurance Company, a mutual insurance company domiciled in Minnesota ("Federated Mutual"), and Federated Life Insurance Company, an insurance company domiciled in Minnesota ("Federated Life” and, together with Federated Mutual, the "Note Purchasers").

UFG sold an aggregate $ 50,000 of notes due 2040 to the Note Purchasers. One note with a principal amount of $ 35,000 was issued to Federated Mutual and one note with a principal amount of $ 15,000 was issued to Federated Life subject to the terms of their respective notes. The notes are presented as a Long term debt liability in the Consolidated Balance Sheets and as a financing activity in the Consolidated Statement of Cash Flows. The Company incurred $ 24 in debt issuance costs associated with this debt transaction in 2020 which are included in other underwriting expenses in the Consolidated Statements of Income and Comprehensive Income.

Interest payments under the surplus notes will be paid quarterly on March 15, June 15, September 15 and December 15 of each year (each such date, an "Interest Payment Date"). The interest rate will equal the rate that corresponds to the A.M. Best Co. (or its successor’s) financial strength rating for members of the United Fire & Casualty Pooled Group as of the applicable Interest Payment Date. As of December 31, 2020, interest totaled $ 133 and is included in accrued expenses and other liabilities in the Consolidated Balance Sheets and as an expense in other underwriting expenses in the Consolidated Statements of Income and Comprehensive Income. Payment of interest is subject to approval by the Iowa Insurance Division.

Income Taxes

The Tax Cuts and Jobs Act of 2017 (the "Tax Act") was enacted on December 22, 2017. The Tax Act significantly revised the U.S. corporate income tax laws including lowering the U.S. federal corporate tax rate from 35 percent to 21 percent, effective January 1, 2018.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. As of December 31, 2018 we had completed accounting for the tax effects of enactment of the Tax Act and no adjustments were made during the measurement period.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss ("NOL") carryovers and carrybacks to offset 100 percent of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2020, 2019 and 2018 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has considered the implications of the CARES Act on its tax provision and has included an income tax benefit of $ 18.6 million as the result of this Act.

Deferred tax assets and liabilities are established based on differences between the financial statement bases of assets and liabilities and the tax bases of those same assets and liabilities, using the currently enacted statutory tax rates. Deferred income tax expense is measured by the year-to-year change in the net deferred tax asset or liability, except for certain changes in deferred tax amounts that affect stockholders' equity and do not impact federal income tax expense.

The Company performs a quarterly review of its tax positions and makes a determination whether it is more likely than not that the tax position will be sustained upon examination. If, based on this review, it appears not more likely than not that the position will be sustained, the Company will calculate any unrecognized tax benefits and calculate any interest and penalties. At December 31, 2020, 2019, and 2018 the Company did no t recognize any liability for unrecognized tax benefits. In addition, we have not accrued for interest and penalties related to unrecognized tax

---

benefits. However, if interest and penalties would need to be accrued related to unrecognized tax benefits, such amounts would be recognized as a component of federal income tax expense.

We file a consolidated federal income tax return. We also file income tax returns in various state jurisdictions. We are no longer subject to federal or state income tax examination for years before 2017.

Leases

The Company determines if a contract contains a lease at inception of the contract. The Company's inventory of leases consists of operating leases which are recorded as a lease obligation liability disclosed in the "Accrued expenses and other liabilities" line on the Consolidated Balance Sheets and as a lease right-of-use asset disclosed in the "Other assets" line on the Consolidated Balance Sheets. The Company's operating leases consist of office space, vehicles, computer equipment and office equipment. The lease right-of-use asset represents the Company's right to use each underlying asset for the lease term and the lease obligation liability represents the Company's obligation over the lease term. The Company's lease obligation is recorded at the present value of the lease payments based on the term of the applied lease. Short-term leases of 12 months or less are recorded on the Consolidated Balance Sheets and lease payments are recognized on the Consolidated Statements of Income and Comprehensive Income. For more information on leases refer to Note 13 "Lease Commitments."

Variable Interest Entities

The Company and certain related parties are equity investors in one investment in which the Company determined is a variable interest entity ("VIE") as a result of participation in the risks and rewards of the VIE based on the objectives and strategies of the VIE. The VIE is a limited liability company that primarily invests in commercial real estate. The Company and certain related parties are not the primary beneficiary largely due to their inability to influence management or direct the activities that most significantly impact the VIE's economic performance. Based on these facts and circumstances, the Company has a variable interest in the VIE, but has not consolidated the VIE's financial results as it is not the primary beneficiary. The Company's investment is reported in other long-term investments in the Consolidated Balance Sheets and accounted for under the equity method of accounting. The fair value of the VIE at December 31, 2020 wa s $ 3.3 million a nd there are no future funding commitments.

Stock-Based Compensation

We currently have two equity compensation plans. One plan allows us to grant restricted and unrestricted stock, stock appreciation rights, incentive stock options, and non-qualified stock options to employees. The other plan allows us to grant restricted and non-qualified stock options to non-employee directors.

We utilize the Black-Scholes option pricing method to establish the fair value of non-qualified stock options granted under our equity compensation plans. Our determination of the fair value of stock options on the date of grant using this option-pricing model is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables, which include the expected volatility in our stock price, the expected term of the award, the expected dividends to be paid over the term of the award and the expected risk-free interest rate. Any changes in these assumptions may materially affect the estimated fair value of the award. For our restricted and unrestricted stock awards, we utilize the fair value of our common stock on the date of grant to establish the fair value of the award. Refer to Note 9 "Stock-Based Compensation" for further discussion.

Credit Losses

The Company recognizes credit losses for its available-for-sale fixed-maturity portfolio, reinsurance receivables, mortgage loans and premium receivables by setting up allowances which are remeasured each reporting period and recorded in the Consolidated Statements of Income and Comprehensive Income.

For our available-for-sale fixed-maturity portfolio an allowance for credit losses is recorded net of available-for-sale fixed maturities in the Consolidated Balance Sheets and a corresponding credit loss recognized as a realized loss or gain in the Consolidated Statements of Income and Comprehensive Income. The Company determines if an

---

allowance for credit losses is recorded based on a number of factors including the current economic conditions, management's expectations of future economic conditions and performance indicators, such as market value vs. amortized cost, investment spreads widening or contracting, rating actions, payment and default history.

The Company does not recognize an allowance for credit losses for accrued interest receivable for available-for-sale fixed-maturity securities, which is recorded in "Accrued investment income" in the Consolidated Balance Sheets and "Investment income, net of investment expenses" in the Consolidated Statements of Income and Comprehensive Income. The Company considers collections of accrued investment income within six months to be timely and therefore not requiring a write- off. If a write-off is required for accrued investment income outstanding greater than six months, the Company writes off accrued interest by reversing net investment income. For more information on

credit losses and the allowance for credit losses for available-for-sale fixed-maturity portfolio, see Note 2 "Summary of Investments."

An allowance for mortgage loan losses is established based on historical loss information of the collective pool of the Company's commercial mortgage loan investments which have similar risk characteristics. To calculate the allowance for mortgage loan losses, the Company starts with historical loan experience to predict the future expected losses and then layers on a market-linked adjustment. On a quarterly basis, quantitative credit risk metrics, including for example, cash- flows, rent rolls and financial statements are reviewed for each loan to determine if it is

performing in line with its expectations. This allowance is presented as a separate line in the Consolidated Balance Sheets beneath the asset value as well as presented net and recorded through "Net realized investment gains (losses)" in the Consolidated Statements of Income and Comprehensive Income. For more information on credit losses and the allowance for credit losses for our investment in mortgage loans see Note 3 "Fair Value of Financial Instruments."

For reinsurance receivables, the Company's model estimates expected credit loss by multiplying the exposure at default by both the probability of default and loss given default ("LGD"). The LGD is estimated by the rating of the Company, historical relationship with UFG, existence of letters of credit and known regulation the Company may be held accountable for. The ultimate LGD percentage is estimated after considering Moody’s experience with unsecured year 1 bond recovery rates from 1983-2017. The allowance calculated as of December 31, 2020 is recorded through the line "Reinsurance receivables and recoverables" in the Consolidated Balance Sheets and through the line "Other underwriting expenses" in the Consolidated Statements of Income and Other Comprehensive Income. As of December 31, 2020, the Company had a credit loss allowance for reinsurance receivables of $ 190 .

Rollforward of Credit Loss Allowance for Reinsurance Receivable
						As of
						December 31, 2020
Beginning balance, January 1, 2020						$	38
Current-period provision for expected credit losses						152
Write-off charged against the allowance, if any						—
Recoveries of amounts previously written off, if any						—
Ending balance of the allowance for reinsurance receivable, December 31, 2020						$	190

With respect to premiums receivable, the Company utilizes an aging method to estimate credit losses. An allowance for doubtful accounts is based on a periodic evaluation of the aging and collectability of amounts due from agents and policyholders. "Premiums receivable" are presented in the Consolidated Balance Sheets net of an estimated allowance for doubtful accounts and recorded through "Other underwriting expenses" in the Consolidated Statements of Income and Comprehensive Income.

Comprehensive Income

Comprehensive income includes all changes in stockholders' equity during a period except those resulting from investments by and dividends to stockholders.

---

Subsequent Events

In the preparation of the accompanying financial statements, the Company has evaluated all material subsequent events or transactions that occurred after the balance sheet date through the date on which the financial statements were issued for potential recognition or disclosure in the Company's financial statements.

Subsequent to the completion of the financial statements as of December 31, 2020, the Company made the decision to change the post-retirement benefit plan to a voluntary plan funded exclusively by participants, commencing at the start of 2023. The impact of this decision will be reflected in the financial statements subsequent to December 31, 2020. As of December 31, 2020, the post-retirement benefit obligation was $ 31,666 . This benefit obligation, along with the unrecognized prior service costs, will be released into the Consolidated Statement of Income and Other Comprehensive Income over the next two years. See Note 8 "Employee Benefits" for more information.

COVID-19 Pandemic

The COVID-19 pandemic caused significant financial market volatility, economic uncertainty and interruptions to normal business activities in 2020. As of the date of this report, we expect the effect of COVID-19 on claims currently under our coverages to be manageable, based on the information presently available. However, the effects of the COVID-19 pandemic continue to evolve and we cannot predict the extent to which our business, results of operations, financial condition, liquidity, capital position, the value of investments we hold in our investment portfolio, premiums and the demand for our products and our ability to collect premiums or requirement to return premiums to our policyholders, will ultimately be impacted. Additionally, if established written contract policy exclusions of business interruption coverage for losses attributable to the COVID-19 pandemic are voided or changed through legislation, regulations or interpretations by the courts, such changes have the potential to materially increase claims, losses and legal expenses which may impact our business, financial condition, results of operations or liquidity.

Recently Issued Accounting Standards

Accounting Standards Adopted in 2020

Intangibles - Other Internal Use Software

In August 2018, the FASB issued guidance to align the requirements for capitalizing implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance requires the Company to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The new guidance was effective for annual and interim periods beginning after December 15, 2019. The Company adopted the new guidance as of January 1, 2020. The adoption did not have a significant impact on the Company's financial position or results of operations.

Financial Instruments - Credit Losses

In June 2016, the FASB issued new guidance on the measurement of credit losses for most financial instruments. The new guidance replaces the incurred loss model for recognizing credit losses with an expected loss model for instruments measured at amortized cost and requires allowances to be recorded for available-for-sale debt securities rather than reduce the carrying amount. These allowances are remeasured each reporting period. The new guidance was effective for annual periods beginning after December 15, 2019 and interim periods within those years. The new guidance impacted the Company's impairment model related to our available-for-sale fixed-maturity portfolio, reinsurance receivables and mortgage loans. The Company has performed a run of the credit loss models as of January 1, 2020. These models resulted in an immaterial expected credit loss at January 1, 2020. Prior to the adoption of the new guidance, the Company utilized an aging method to estimate credit losses on premiums receivable. This aging method is permitted under the new guidance. The Company adopted the new guidance

---

prospectively as of January 1, 2020 recording a cumulative effect adjustment to opening retained earnings of $ 30 . This cumulative effect adjustment is an allowance related to the Company's reinsurance receivables. The adoption of the new guidance did not have a material impact on the Company's financial position and results of operations.

Goodwill

In January 2017, the FASB issued new guidance which simplifies the test for goodwill impairment. The new guidance eliminates the implied fair value calculation when measuring a goodwill impairment charge. Under the new guidance, impairment charges are based on the excess of the carrying value over fair value of goodwill. The new guidance was effective for annual and interim periods beginning after December 15, 2019. The Company adopted the new guidance as of January 1, 2020. The adoption did not have a significant impact on the Company's financial position or results of operations.

Financial Instruments - Disclosures

In August 2018, the FASB issued new guidance which modifies the disclosure requirements on fair value measurements of financial instruments. The new guidance removes the requirement for disclosing the amount and reason for transfers between Level 1 and Level 2 investment securities and the valuation processes for Level 3 fair value measurements. The guidance also requires additional disclosures on the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The new guidance is effective for annual and interim periods beginning after December 15, 2019. The Company adopted the new guidance as of January 1, 2020. The adoption modified existing fair value disclosures, but did not have an impact on the Company's financial position or results of operations.

Pending Adoption of Accounting Standards

Defined Benefit Plans - Disclosures

In August 2018, the FASB issued new guidance which modifies the disclosure requirements for employers that sponsor defined benefit pension and postretirement plans. The new guidance removes the requirement for disclosing the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit costs in the next year and the sensitivity of postretirement health plans to one-percentage-point changes in medical trend rates. The new guidance is effective for annual periods beginning after December 15, 2020. The Company adopted the new guidance as of January 1, 2021. The new guidance will modify existing disclosures, but will not have an impact on the Company's financial position and results of operations.

Income Taxes

---

Fair Value of Investments

The table that follows is a reconciliation of the amortized cost (cost for equity securities) to fair value of investments in available-for-sale fixed maturity securities, presented on a consolidated basis as of December 31, 2020 and 2019.

December 31, 2020
Type of Investment			Cost or Amortized Cost						Gross Unrealized Appreciation						Gross Unrealized Depreciation						Fair Value						Allowance for Credit Losses						Carrying Value
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury			$	149,481					$	482					$	25					$	149,938					$	—					$	149,938
U.S. government agency			60,502						4,016						—						64,518						—						64,518
States, municipalities and political subdivisions
General obligations:
Midwest			77,933						4,047						—						81,980						—						81,980
Northeast			29,071						1,379						—						30,450						—						30,450
South			104,522						5,448						—						109,970						—						109,970
West			102,590						7,431						—						110,021						—						110,021
Special revenue:
Midwest			115,956						9,142						—						125,098						—						125,098
Northeast			56,317						4,759						—						61,076						—						61,076
South			208,739						17,967						—						226,706						—						226,706
West			129,417						9,982						—						139,399						—						139,399
Foreign bonds			27,799						1,805						2						29,602						—						29,602
Public utilities			76,114						7,388						—						83,502						—						83,502
Corporate bonds
Energy			22,441						2,895						—						25,336						—						25,336
Industrials			39,513						3,744						—						43,257						—						43,257
Consumer goods and services			46,521						4,046						—						50,567						—						50,567
Health care			6,678						898						—						7,576						—						7,576
Technology, media and telecommunications			37,270						4,381						15						41,636						—						41,636
Financial services			93,736						7,564						269						101,031						5						101,026
Mortgage-backed securities			20,305						326						54						20,577						—						20,577
Collateralized mortgage obligations
Government national mortgage association			81,758						4,439						45						86,152						—						86,152
Federal home loan mortgage corporation			151,362						2,239						758						152,843						—						152,843
Federal national mortgage association			81,952						2,013						683						83,282						—						83,282
Asset-backed securities			314						612						—						926						—						926
Total Available-For-Sale Fixed Maturities			$	1,720,291					$	107,003					$	1,851					$	1,825,443					$	5					$	1,825,438

---

December 31, 2019
Type of Investment			Cost or Amortized Cost						Gross Unrealized Appreciation						Gross Unrealized Depreciation						Fair Value
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury			$	69,300					$	203					$	12					$	69,491
U.S. government agency			97,962						2,344						104						100,202
States, municipalities and political subdivisions
General obligations:
Midwest			85,607						2,987						—						88,594
Northeast			30,120						1,150						—						31,270
South			111,688						3,515						—						115,203
West			105,569						4,748						—						110,317
Special revenue:
Midwest			133,717						6,175						—						139,892
Northeast			58,665						2,878						—						61,543
South			224,214						10,452						—						234,666
West			138,557						6,287						—						144,844
Foreign bonds			4,936						181						—						5,117
Public utilities			60,950						2,701						—						63,651
Corporate bonds
Energy			28,695						1,429						—						30,124
Industrials			52,249						1,766						—						54,015
Consumer goods and services			47,131						2,335						—						49,466
Health care			8,998						482						—						9,480
Technology, media and telecommunications			25,931						1,739						—						27,670
Financial services			96,613						3,870						230						100,253
Mortgage-backed securities			6,250						127						21						6,356
Collateralized mortgage obligations
Government national mortgage association			78,400						2,053						97						80,356
Federal home loan mortgage corporation			123,572						1,150						220						124,502
Federal national mortgage association			70,322						1,631						108						71,845
Asset-backed securities			314						436						—						750
Total Available-For-Sale Fixed Maturities			$	1,659,760					$	60,639					$	792					$	1,719,607

Maturities

The amortized cost and fair value of available-for-sale fixed maturity securities at December 31, 2020, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset-backed securities, mortgage-backed securities and collateralized mortgage obligations may be subject to prepayment risk and are therefore not categorized by contractual maturity.

---

Maturities
									Available-For-Sale
December 31, 2020															Amortized Cost						Fair Value
Due in one year or less															$	32,214					$	32,467
Due after one year through five years															476,667						502,699
Due after five years through 10 years															400,277						431,271
Due after 10 years															475,442						515,226
Asset-backed securities															314						926
Mortgage-backed securities															20,305						20,577
Collateralized mortgage obligations															315,072						322,277
															$	1,720,291					$	1,825,443

Net Realized Investment Gains and Losses

Net realized gains (losses) on disposition of investments are computed using the specific identification method and are included in the computation of net income. A summary of net realized investment gains (losses) for 2020, 2019 and 2018, is as follows:

			2020						2019						2018
Net realized investment gains (losses) from continuing operations
Fixed maturities:
Available-for-sale			$	1,787					$	655					$	( 254 )
Allowance for credit losses			( 5 )						—						—
Trading securities
Change in fair value			( 3,314 )						1,351						( 296 )
Sales			2,950						1,993						1,226
Equity securities
Change in fair value			( 6,875 )						51,231						( 21,994 )
Sales			( 26,906 )						725						1,702
Mortgage loans			( 4 )						( 26 )						( 46 )
Real estate			( 28 )						( 2,150 )						( 517 )
Total net realized investment gains (losses) from continuing operations			$	( 32,395 )					$	53,779					$	( 20,179 )
Total net realized investment gains (losses) from discontinued operations			—						—						( 1,057 )
Total net realized investment gains (losses)			$	( 32,395 )					$	53,779					$	( 21,236 )

The proceeds and gross realized gains (losses) on the sale of available-for-sale fixed maturity securities from continuing operations for 2020, 2019 and 2018, are as follows:

			2020						2019						2018
Proceeds from sales			$	50,744					$	41,760					$	132,250
Gross realized gains			1,400						302						140
Gross realized losses			( 495 )						( 13 )						( 517 )

There were no proceeds and gross realized gains (losses) on the sale of available-for-sale fixed maturity securities from discontinued operations for 2020, 2019 and 2018.

Our investment portfolio includes trading securities with embedded derivatives. These securities are primarily convertible securities which are recorded at fair value. Income or loss, including the change in the fair value of these trading securities, is recognized currently in earnings as a component of net realized investment gains and losses. Our portfolio of trading securities had a fair value of $ 0 and $ 15,256 at December 31, 2020 and 2019, respectively.

---

Net investment income for the years ended December 31, 2020, 2019 and 2018, is comprised of the following:

Years Ended December 31,			2020						2019						2018
Investment income from continuing operations:
Interest on fixed maturities			$	46,478					$	50,274					$	51,356
Dividends on equity securities			6,368						7,842						7,731
Income on other long-term investments
Investment income			1,890						3,115						8,383
Change in value (1)			( 9,633 )						1,114						( 10,116 )
Interest on mortgage loans			1,949						1,595						412
Interest on short-term investments			107						522						606
Interest on cash and cash equivalents			763						2,681						1,875
Other			205						252						307
Total investment income from continuing operations			$	48,127					$	67,395					$	60,554
Less investment expenses			8,457						6,981						7,660
Net investment income from continuing operations			$	39,670					$	60,414					$	52,894
Net investment income from discontinued operations			$	—					$	—					$	12,663
Net investment income			$	39,670					$	60,414					$	65,557

(1) Represents the change in value of our interests in limited liability partnerships that are recorded on the equity method of accounting.

Funding Commitment

Pursuant to agreements with our limited liability partnership investments, we are contractually committed through July 10, 2030 to make capital contributions upon request of the partnerships. Our remaining potential contractual obligation was $ 8,484 at December 31, 2020.

In addition, the Company invested $ 25,000 in December 2019 in a limited liability partnership investment fund which is subject to a 3 -year lockup with a 60 day minimum notice, with 4 possible repurchase dates per year, after the 3 -year lockup period is met. The fair value of the investment at December 31, 2020 was $ 24,867 and there are no remaining capital contributions with this investment.

Credit Risk

An allowance for credit losses is recorded based on a number of factors including the current economic conditions, management's expectations of future economic conditions and performance indicators, such as market value vs. amortized cost, investment spreads widening or contracting, rating actions, payment and default history. The following table contains a rollforward of the allowance for credit losses for available-for-sale fixed maturity securities at December 31, 2020:

Rollforward of allowance for credit losses for available-for-sale fixed maturity securities:
						As of
						December 31, 2020
Beginning balance, January 1, 2020						$	—
Additions to the allowance for credit losses for which credit losses were not previously recorded						5
Reductions for securities sold during the period (realized)						—
Writeoffs charged against the allowance						—
Recoveries of amounts previously written off						—
Ending balance, December 31, 2020						$	5

---

Unrealized Appreciation and Depreciation

A summary of changes in net unrealized investment appreciation for 2020, 2019 and 2018, is as follows for continuing operations and discontinued operations:

			2020						2019						2018
Change in net unrealized investment appreciation
Available-for-sale fixed maturities			$	45,305					$	71,648					$	( 57,475 )
Deferred policy acquisition costs			—						—						7,274
Income tax effect			( 9,514 )						( 15,046 )						10,543
Cumulative change in accounting principles			—						—						( 191,244 )
Net unrealized investment depreciation of discontinued operations, sold			—						—						6,714
Total change in net unrealized investment appreciation (depreciation), net of tax			$	35,791					$	56,602					$	( 224,188 )

The following tables summarize our fixed maturity securities that were in an unrealized loss position reported on a consolidated basis at December 31, 2020 and 2019. The securities are presented by the length of time they have been continuously in an unrealized loss position. Non-credit related unrealized losses are recognized as a component of other comprehensive income and represent other market movements that are not credit related, for example interest rate changes. We have no intent to sell, and it is more likely than not that we will not be required to sell, these securities until the fair value recovers to at least equal our cost basis or the securities mature.

---

December 31, 2020			Less than 12 months																		12 months or longer																		Total
Type of Investment			Number of Issues						Fair Value						Gross Unrealized Depreciation						Number of Issues						Fair Value						Gross Unrealized Depreciation						Fair Value						Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury			5						$	86,371					$	25					—						$	—					$	—					$	86,371					$	25
Foreign bonds			1						2,000						2						—						—						—						2,000						2
Corporate bonds
Technology, media and telecommunications			1						2,020						15						—						—						—						2,020						15
Financial services			1						2,995						5						1						3,000						7						5,995						12
Mortgage-backed securities			2						8,099						53						5						118						1						8,217						54
Collateralized mortgage obligations
Government national mortgage association			2						12,394						45						1						24						—						12,418						45
Federal home loan mortgage corporation			24						97,691						758						1						26						—						97,717						758
Federal national mortgage association			10						44,677						683						—						—						—						44,677						683
Total Available-for-Sale Fixed Maturities			46						$	256,247					$	1,586					8						$	3,168					$	8					$	259,415					$	1,594

The unrealized losses on our investments in available-for-sale fixed maturities were the result of interest rate movements. We have no intent to sell, and it is more likely than not that we will not be required to sell, these securities until the fair value recovers to at least equal our cost basis or the securities mature.

December 31, 2019			Less than 12 months																		12 months or longer																		Total
Type of Investment			Number of Issues						Fair Value						Gross Unrealized Depreciation						Number of Issues						Fair Value						Gross Unrealized Depreciation						Fair Value						Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury			—						$	—					$	—					2						$	4,733					$	12					$	4,733					$	12
U.S. government agency			3						13,846						104						—						—						—						13,846						104
Corporate bonds - financial services			3						10,906						142						1						4,913						88						15,819						230
Mortgage-backed securities			—						—						—						13						1,585						21						1,585						21
Collateralized mortgage obligations
Government national mortgage association			2						8,444						38						5						3,053						59						11,497						97
Federal home loan mortgage corporation			12						50,829						183						3						4,844						37						55,673						220
Federal national mortgage association			4						23,515						90						3						1,102						18						24,617						108
Total Available-for-Sale Fixed Maturities			24						$	107,540					$	557					27						$	20,230					$	235					$	127,770					$	792

---

Current accounting guidance on fair value measurements includes the application of a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Our financial instruments that are recorded at fair value are categorized into a three-level hierarchy, which is based upon the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (i.e., Level 1) and the lowest priority to unobservable inputs (i.e., Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the financial instrument.

Financial instruments recorded at fair value are categorized in the fair value hierarchy as follows:

• Level 1 : Valuations are based on unadjusted quoted prices in active markets for identical financial instruments that we have the ability to access.

• Level 2 : Valuations are based on quoted prices for similar financial instruments, other than quoted prices included in Level 1, in markets that are not active or on inputs that are observable either directly or indirectly for the full term of the financial instrument.

• Level 3 : Valuations are based on pricing or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement of the financial instrument. Such inputs may reflect management's own assumptions about the assumptions a market participant would use in pricing the financial instrument.

We review our fair value hierarchy categorizations on a quarterly basis at which time the classification of certain financial instruments may change if the input observations have changed. Transfers between levels, if any, are recorded as of the beginning of the reporting period.

To determine the fair value of the majority of our investments, we utilize prices obtained from independent, nationally recognized pricing services. We obtain one price for each security. When the pricing services cannot provide a determination of fair value for a specific security, we obtain non-binding price quotes from broker-dealers with whom we have had several years of experience and who have demonstrated knowledge of the subject security. We request and utilize one broker quote per security.

In order to determine the proper classification in the fair value hierarchy for each security where the price is obtained from an independent pricing service, we obtain and evaluate the vendors' pricing procedures and inputs used to price the security, which include unadjusted quoted market prices for identical securities, such as a New York Stock Exchange closing price, and quoted prices for identical securities in markets that are not active. For fixed maturity securities, an evaluation of interest rates and yield curves observable at commonly quoted intervals, volatility, prepayment speeds, credit risks and default rates may also be performed. We have determined that these processes and inputs result in fair values and classifications consistent with the applicable accounting guidance on fair value measurements.

When possible, we use quoted market prices to determine the fair value of fixed maturities, equity securities, trading securities and short-term investments. When quoted market prices do not exist, we base estimates of fair value on market information obtained from independent pricing services and brokers or on valuation techniques that are both unobservable and significant to the overall fair value measurement of the financial instrument. Such inputs may reflect management's own assumptions about the assumptions a market participant would use in pricing the financial instrument. Our valuation techniques are discussed in more detail throughout this section.

The mortgage loan portfolio consists entirely of commercial mortgage loans. The fair value of our mortgage loans is determined by modeling performed by our third party fund manager based on the stated principal and coupon payments provided for in the loan agreements. These cash flows are then discounted using an appropriate risk-adjusted discount rate to determine the security's fair value.

---

Our other long-term investments consist primarily of our interests in limited liability partnerships that are recorded on the equity method of accounting. The fair value of the partnerships is obtained from the fund managers, which is based on the fair value of the underlying investments held in the partnerships. In management's opinion, these values represent a reasonable estimate of fair value. We have not adjusted the net asset value provided by the fund managers.

For cash and cash equivalents and accrued investment income, carrying value is a reasonable estimate of fair value due to the short-term nature of these financial instruments.

The Company formed a rabbi trust in 2014 to fund obligations under the United Fire & Casualty Company Non-qualified Deferred Compensation Plan and United Fire Group Supplemental Executive Retirement and Deferral Plan (collectively the "Executive Retirement Plans"). Within the rabbi trust, corporate-owned life insurance ("COLI") policies are utilized as an investment vehicle and source of funding for the Company's Executive Retirement Plans. The COLI policies invest in mutual funds, which are priced daily by independent sources. As of December 31, 2020, the cash surrender value of the COLI policies was $ 8,557 , which is equal to the fair value measured using Level 2 inputs, based on the underlying assets of the COLI policies, and is included in other assets in the Consolidated Balance Sheets.

A summary of the carrying value and estimated fair value of our financial instruments from at December 31, 2020 and 2019 is as follows:

			December 31, 2020												December 31, 2019
			Fair Value						Carrying Value						Fair Value						Carrying Value
Assets
Investments
Fixed maturities:
Available-for-sale securities			$	1,825,443					$	1,825,438					$	1,719,607					$	1,719,607
Trading securities			—						—						15,256						15,256
Equity securities			206,685						206,685						299,203						299,203
Mortgage loans			48,932						47,614						43,992						42,448
Other long-term investments			69,305						69,305						78,410						78,410
Short-term investments			175						175						175						175
Cash and cash equivalents			87,948						87,948						120,722						120,722
Corporate-owned life insurance			8,557						8,557						6,777						6,777
Liabilities
Long term debt			50,000						50,000						—						—

---

The following tables present the categorization for our financial instruments measured at fair value on a recurring basis. The tables include financial instruments at December 31, 2020 and 2019:

									Fair Value Measurements
Description			December 31, 2020						Level 1						Level 2						Level 3
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury			$	149,938					$	—					$	149,938					$	—
U.S. government agency			64,518						—						64,518						—
States, municipalities and political subdivisions
General obligations
Midwest			81,980						—						81,980						—
Northeast			30,450						—						30,450						—
South			109,970						—						109,970						—
West			110,021						—						110,021						—
Special revenue
Midwest			125,098						—						125,098						—
Northeast			61,076						—						61,076						—
South			226,706						—						226,706						—
West			139,399						—						139,399						—
Foreign bonds			29,602						—						29,602						—
Public utilities			83,502						—						83,502						—
Corporate bonds
Energy			25,336						—						25,336						—
Industrials			43,257						—						43,257						—
Consumer goods and services			50,567						—						50,567						—
Health care			7,576						—						7,576						—
Technology, media and telecommunications			41,636						—						41,636						—
Financial services			101,031						—						100,781						250
Mortgage-backed securities			20,577						—						20,577						—
Collateralized mortgage obligations
Government national mortgage association			86,152						—						86,152						—
Federal home loan mortgage corporation			152,843						—						152,843						—
Federal national mortgage association			83,282						—						83,282						—
Asset-backed securities			926						—												926
Total Available-For-Sale Fixed Maturities			$	1,825,443					$	—					$	1,824,267					$	1,176
Equity securities
Public utilities			16,320						16,320						—						—
Energy			9,918						9,918						—						—
Industrials			36,556						36,556						—						—
Consumer goods and services			32,061						32,061						—						—
Health care			24,549						24,549						—						—
Technology, Media & Telecommunications			17,109						17,109						—						—
Financial Services			69,577						69,577						—						—

---

---

---

Equity securities
Public utilities			$	16,295					$	16,295					$	—					$	—
Energy			14,639						14,639						—						—
Industrials			57,330						57,330						—						—
Consumer goods and services			29,935						29,935						—						—
Health care			27,285						27,285						—						—
Financial Services			19,265						19,265						—						—
Technology, media and telecommunications			127,780						127,780						—						—
Nonredeemable preferred stocks			6,674						6,079						—						595
Total Equity Securities			$	299,203					$	298,608					$	—					$	595
Short-Term Investments			$	175					$	175					$	—					$	—
Money Market Accounts			$	9,334					$	9,334					$	—					$	—
Corporate-Owned Life Insurance			$	6,777					$	—					$	6,777					$	—
Total Assets Measured at Fair Value			$	2,050,352					$	312,204					$	1,736,553					$	1,595

The fair value of securities that are categorized as Level 1 is based on quoted market prices that are readily and regularly available.

We use a market-based approach for valuing all of our Level 2 securities and submit them primarily to a third-party valuation service provider. Any of these securities not valued by this service provider are submitted to another third-party valuation service provider. Both service providers use a market approach to find pricing of similar financial instruments. The market inputs our service providers normally seek to value our securities include the following, listed in approximate order of priority: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. The method and inputs for these securities classified as Level 2 are the same regardless of industry category, credit quality, duration, geographical concentration or economic characteristics. For our mortgage-backed securities, collateralized mortgage obligations and asset-backed securities, our service providers use additional market inputs to value these securities, including the following: new issue data, periodic payment information, monthly payment information, collateral performance and real estate analysis from third parties. Our service providers prioritize inputs based on market conditions, and not all inputs listed are available for use in the valuation process for each security on any given day.

At least annually, we review the methodologies and assumptions used by our valuation service providers and verify that they are reasonable and representative of the fair value of the underlying securities held in the investment portfolio. We validate the prices obtained from independent pricing services and brokers prior to their use for reporting purposes by evaluating their reasonableness on a monthly basis. In addition, on a quarterly basis, we also test all securities in the portfolio and independently corroborate the valuations obtained from our third-party valuation service providers. Quarterly, we also perform deep dive analysis of the pricing method used by our third-party valuation service provider by selecting a random sample of securities by asset class and reviewing methodologies. In our opinion, the pricing obtained at December 31, 2020 and 2019 was reasonable.

For the year ended December 31, 2020, the change in our available-for-sale securities categorized as Level 1 and Level 2 is the result of investment purchases that were made using funds held in our money market accounts, disposals and the change in unrealized gains on both fixed maturities and equity securities.

Securities categorized as Level 3 include holdings in certain private placement fixed maturity and equity securities for which an active market does not currently exist. The fair value of our Level 3 private placement securities is determined by management relying on pricing received from our independent pricing services and brokers consistent with the process to estimate fair value for Level 2 securities. However, securities are categorized as Level 3 if these quotes cannot be corroborated by other market observable data due to the unobservable nature of the brokers’

---

valuation processes. The following table provides a quantitative information about our Level 3 securities at December 31, 2020.

Quantitative Information about Level 3 Fair Value Measurements

Fair Value at

Valuation Technique(s)

Unobservable inputs

Range of weighted average significant unobservable inputs

December 31, 2020

Corporate bonds - financial services

$

250

Fair value equals cost

NA

NA

Fixed Maturities asset-backed securities

926

Discounted cash flow

Probability of default

4 % - 6 %

Nonredeemable preferred stocks

595

Discounted cash flow

Multiplier

3 x - 4 x

During the twelve month period ended December 31, 2020 and 2019, there were no securities transferred in or out of Level 3.

The following table provides a summary of the changes in fair value of our Level 3 securities for 2020:

															Corporate bonds						Asset-backed securities						Equities						Total
Balance at January 1, 2020															$	250					$	750					$	595					$	1,595
Unrealized gains (1)															—						176						—						176
Balance at December 31, 2020															$	250					$	926					$	595					$	1,771

(1) Unrealized gains are recorded as a component of comprehensive income.

The following table provides a summary of the changes in fair value of our Level 3 securities for 2019:

																					Corporate bonds						Asset-backed securities						Equities						Total
Balance at January 1, 2019																					$	250					$	666					$	595					$	1,511
Unrealized gains (losses) (1)																					—						84						—						84
Purchases																					100						—						—						100
Disposals																					( 100 )						—						—						( 100 )
Balance at December 31, 2019																					$	250					$	750					$	595					$	1,595

(1) Unrealized gains (losses) are recorded as a component of comprehensive income.

The fixed maturities reported as disposals relate to the receipt of principal on calls or sinking fund bonds, in accordance with the indentures.

Commercial Mortgage Loans

The following tables present the carrying value of our commercial mortgage loans and additional information at December 31, 2020 and 2019:

Commercial Mortgage Loans
Loan-to-value			December 31, 2020												December 31, 2019
Less than 65%			$	30,361											34,024
65%-75%			17,329												8,496
Total amortized cost			$	47,690											$	42,520
Valuation allowance			( 76 )												( 72 )
Total mortgage loans			$	47,614											$	42,448

---

Mortgage Loans by Region
			December 31, 2020												December 31, 2019
			Carrying Value						Percent of Total						Carrying Value						Percent of Total
East North Central			$	3,245					6.8		%				$	3,245					7.6		%
Southern Atlantic			9,752						20.5						7,026						16.5
East South Central			8,197						17.2						8,358						19.7
New England			6,588						13.8						6,588						15.5
Middle Atlantic			14,936						31.2						15,076						35.5
Mountain			2,227						4.7						2,227						5.2
Other			2,745						5.8						—						—
Total mortgage loans at amortized cost			$	47,690					100.0		%				$	42,520					100.0		%

Mortgage Loans by Property Type
			December 31, 2020												December 31, 2019
			Carrying Value						Percent of Total						Carrying Value						Percent of Total
Commercial
Multifamily			$	17,038					35.7		%				$	11,741					27.6		%
Office			11,861						24.9						11,848						27.9
Industrial			10,124						21.2						10,124						23.8
Retail			2,227						4.7						2,227						5.2
Mixed use/Other			6,440						13.5						6,580						15.5
Total mortgage loans at amortized cost			$	47,690					100.0		%				$	42,520					100.0		%

Amortized Cost Basis by Year of Origination and Credit Quality Indicator
			2020						2019						2018						Total
Commercial mortgage loans:
Risk Rating:
1-2 internal grade			$	5,537					$	8,393					$	18,676					$	32,606
3-4 internal grade			—						8,496						6,588						15,084
5 internal grade			—						—						—						—
6 internal grade			—						—						—						—
7 internal grade			—						—						—						—
Total commercial mortgage loans			$	5,537					$	16,889					$	25,264					$	47,690
Current-period write-offs			—						—						—						—
Current-period recoveries			—						—						—						—
Current-period net write-offs			$	—					$	—					$	—					$	—

Commercial mortgage loans carrying value excludes accrued interest of $ 168 . As of December 31, 2020, all loan receivables were current, with no delinquencies. The commercial mortgage loans originate with an initial loan-to-value ratio to provide sufficient collateral to absorb losses should a loan be required to foreclose. Mortgage loans are evaluated on a quarterly basis for impairment on an individual basis through a monitoring process and review of key credit indicators, such as economic trends, delinquency rates, property valuations, occupancy and rental rates and loan-to-value ratios. A loan is considered impaired when the Company believes it will not collect the contractual principal and interest set forth in the contractual terms of the loan. An internal grade is assigned to each mortgage loan, with a grade of 1 being the highest and least likely for an impairment and the lowest rating of 7 being the most likely for an impairment. An allowance for mortgage loan losses is established on each loan recognizing a loss for

---

amounts which we believe will not be collected according to the contractual terms of the respective loan agreement. As of December 31, 2020, the Company had an allowance for mortgage loan losses of $ 76 , summarized in the following rollforward:

Rollforward of allowance for mortgage loan losses:
						As of
						December 31, 2020
Beginning balance, January 1, 2020						$	72
Current-period provision for expected credit losses						4
Write-off charged against the allowance, if any						—
Recoveries of amounts previously written off, if any						—
Ending balance of the allowance for mortgage loan losses, December 31, 2020						$	76

---

Continuing Operations - Property and Casualty Insurance Business

Ceded and Assumed Reinsurance

Reinsurance is a contract by which one insurer, called the reinsurer, agrees to cover, under certain defined circumstances, a portion of the losses incurred by a primary insurer if a claim is made under a policy issued by the primary insurer. Our property and casualty insurance companies follow the industry practice of reinsuring a portion of their exposure by ceding to reinsurers a portion of the premium received and a portion of the risk under the policies written. We purchase reinsurance to reduce the net liability on individual risks to predetermined limits and to protect us against catastrophic losses, such as a hurricane or tornado. We do not engage in any reinsurance transactions classified as finite risk reinsurance.

We account for premiums, written and earned, and losses incurred net of reinsurance ceded. The ceding of insurance does not legally discharge us from primary liability under our policies, and we must pay the loss if the reinsurer fails to meet its obligation. We periodically monitor the financial condition of our reinsurers to confirm that they are financially stable. We believe that all of our reinsurers are in an acceptable financial condition and there were no reinsurance balances at December 31, 2020 for which collection is at risk that would result in a material impact on our Consolidated Financial Statements. The amount of reinsurance recoverable on paid losses totaled $ 28,887 and $ 3,883 at December 31, 2020 and 2019, respectively.

We also assume both property and casualty insurance from other insurance or reinsurance companies. Most of the business we have assumed is property insurance, with an emphasis on catastrophe coverage.

Premiums and losses and loss settlement expenses related to our ceded and assumed business are as follows:

Years Ended December 31,			2020						2019						2018
Ceded Business
Ceded premiums written			$	88,339					$	74,511					$	66,800
Ceded premiums earned			84,924						72,023						63,487
Loss and loss settlement expenses ceded			185,653						28,447						22,317
Assumed Business
Assumed premiums written			$	34,371					$	27,869					$	16,761
Assumed premiums earned			33,679						25,412						16,957
Loss and loss settlement expenses assumed			29,141						14,813						( 3,954 )

In 2020, we renewed our participation in all of our assumed programs. Loss and loss settlement expenses ceded increased in 2020 as compared to 2019, primarily due to the August Midwest derecho, the recovery of the all lines aggregate program and increase in severity of commercial property and workers' compensation losses.

In 2019 we added two additional assumed programs and did not renew one program from 2018. Loss and loss settlement expenses ceded increased in 2019 as compared to 2018, primarily due to an increase in severity of commercial auto losses, assumed reinsurance losses, extra contractual obligations and catastrophe losses.

In 2018, we renewed our participation in all of our assumed programs.

Refer to Note 5 "Reserves for Losses and Loss Settlement Expenses" for an analysis of changes in our overall property and casualty insurance reserves.

---

Reinsurance Programs and Retentions

We have several programs that provide reinsurance coverage. This reinsurance coverage limits the risk of loss that we retain by reinsuring direct risks in excess of our retention limits. The following table provides a summary of our primary reinsurance programs. Retention amounts reflect the accumulated retentions and co-participation of all layers within a program. For 2020, there was an all lines annual aggregate excess of loss program with variable retention of 6.37 percent of gross net earned premium with a minimum retention of $ 58.5 million and a maximum of $ 71.5 million. Our all lines aggregate recovery is also limited to $ 30.0 million and 75.0 percent of the program was placed. For 2020, the Company recovered the maximum of $ 22.5 million from the all lines annual aggregate excess of loss program. For 2019, there was an all lines annual aggregate excess of loss program with a variable retention of 6.66 percent of gross net earned premium with a minimum retention of $ 58.5 million and a maximum of $ 71.5 million. Our all lines aggregate recovery is also limited to a maximum of $ 30.0 million. For 2018, there was an all lines annual aggregate excess of loss program with a variable retention of 6.78 percent of gross net earned premium with a minimum retention of $ 58.5 million and a maximum of $ 71.5 million. Our all lines aggregate recovery is also limited to a maximum of $ 30.0 million. For 2019 and 2018, the Company did not have any recoveries from the all lines annual aggregate loss program.

			2020 Reinsurance Programs
Type of Reinsurance			Stated Retention						Limits						Coverage
Casualty excess of loss			$	2,500					$	60,000					100		%	of			$	57,500
Property excess of loss			2,500						25,000						100		%	of			$	22,500
Surety excess of loss			1,500						45,000						100		%	of			$	43,500
Property catastrophe, excess			20,000						250,000						100		%	of			$	230,000
Boiler and machinery			N/A						50,000						100		%	of			$	50,000

			2019 Reinsurance Programs
Type of Reinsurance			Stated Retention						Limits						Coverage
Casualty excess of loss			$	2,500					$	60,000					100		%	of			$	57,500
Property excess of loss			2,500						25,000						100		%	of			$	22,500
Surety excess of loss			1,500						45,000						100		%	of			$	43,500
Property catastrophe, excess			20,000						250,000						100		%	of			$	230,000
Boiler and machinery			N/A						50,000						100		%	of			$	50,000

			2018 Reinsurance Programs
Type of Reinsurance			Stated Retention						Limits						Coverage
Casualty excess of loss			$	2,500					$	60,000					100		%	of			$	57,500
Property excess of loss			2,500						25,000						100		%	of			$	22,500
Surety excess of loss			1,500						45,000						100		%	of			$	43,500
Property catastrophe, excess			20,000						250,000						100		%	of			$	230,000
Boiler and machinery			N/A						50,000						100		%	of			$	50,000

If we incur catastrophe losses and loss settlement expenses that exceed the coverage limits of our reinsurance program, our property catastrophe program provides one guaranteed reinstatement. In such an instance, we are required to pay the reinsurers a reinstatement premium equal to the full amount of the original premium, which will reinstate the full amount of reinsurance available under the property catastrophe program.

---

Discontinued Operations - Life Insurance Business

Premiums and losses and loss settlement expenses related to our ceded business are as follows:

Years Ended December 31,			2020						2019						2018
Ceded Business
Ceded insurance in-force			$	—					$	—					$	—
Ceded premiums earned			—						—						716
Loss and loss settlement expenses ceded			—						—						1,473

The ceding of insurance did not legally discharge United Life from primary liability under its policies. United Life must pay the loss if the reinsurer fails to meet its obligations. United Life periodically monitored the financial condition of their reinsurers to confirm that they were financially stable and had strong credit ratings. We believe that all of the reinsurers were in an acceptable financial condition.

Property insurance indemnifies an insured with an interest in physical property for loss of, or damage to, such property or the loss of its income-producing abilities. Casualty insurance primarily covers liability for damage to property of, or injury to, a person or entity other than the insured. In most cases, casualty insurance also obligates the insurance company to provide a defense for the insured in litigation, arising out of events covered by the policy.

Liabilities for losses and loss settlement expenses reflect management's best estimates at a given point in time of what we expect to pay for claims that have been reported and those that have been incurred but not reported ("IBNR"), based on known facts, circumstances, and historical trends. Because property and casualty insurance reserves are estimates of the unpaid portions of incurred losses that have been reported to us, as well as losses that have been incurred but not reported, the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process. The ultimate cost of losses and related loss settlement expenses may vary materially from recorded amounts. We regularly update our reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in prior year reserve estimates, which may be material, are reported as a component of losses and loss settlement expenses incurred in the period such changes are determined.

The determination of reserves (particularly those relating to liability lines of insurance that have relatively longer lag in claim reporting) requires significant work to reasonably project expected future claim reporting and payment patterns. If, during the course of our regular monitoring of reserves, we determine that coverages previously written are incurring higher than expected losses, we will take action that may include, among other things, increasing the related reserves. Any adjustments we make to reserves are reflected in operating results in the year in which we make those adjustments. We engage an independent actuary, Regnier Consulting Group, Inc. ("Regnier"), to render an opinion as to the reasonableness of our statutory reserves annually. The actuarial opinion is filed in those states where we are licensed.

On a quarterly basis, United Fire's team of internal actuaries performs a detailed actuarial review of IBNR reserves. This review includes a comparison of results from the most recent analysis of reserves completed by both our internal and external actuaries. Senior management meets with our internal actuary to review, on a regular and quarterly basis, the adequacy of carried reserves based on results from this actuarial analysis. There are two fundamental types or sources of IBNR reserves. We record IBNR reserves for "normal" types of claims and also specific IBNR reserves related to unique circumstances or events. A major hurricane is an example of an event that might necessitate establishing specific IBNR reserves because an analysis of existing historical data would not provide an appropriate estimate.

---

Our IBNR methodologies and assumptions are reviewed periodically, but changes are infrequent. In response to an increase in severity of losses and an increase in distracted driving claims, we revised our commercial automobile assumptions, resulting in an increase to our carried loss IBNR. We also reviewed our methodology and assumptions in our product liability line, associated with our construction defects business, and assumptions due to improvement in development patterns related to the statute of limitations on accident years that have matured 13 to 15 years which haven't developed to the extent we initially expected. Besides the changes to our assumptions used for our commercial automobile line and product liability line, we continually review and revise items affecting our projections of required reserves for unpaid loss and loss adjustment expense ("LAE"). Items reviewed and revised include development factors for paid and reported loss, paid development factors for allocated LAE, and the ratios of paid unallocated LAE to paid loss.

We do not discount loss reserves based on the time value of money.

The following table provides an analysis of changes in our property and casualty losses and loss settlement expense reserves for 2020, 2019 and 2018 (net of reinsurance amounts):

Years Ended December 31,			2020						2019						2018
Gross liability for losses and loss settlement expenses at beginning of year			$	1,421,754					$	1,312,483					$	1,224,183
Ceded losses and loss settlement expenses			( 68,536 )						( 57,094 )						( 59,871 )
Net liability for losses and loss settlement expenses at beginning of year			$	1,353,218					$	1,255,389					$	1,164,312
Losses and loss settlement expenses incurred for claims occurring during
Current year			$	887,119					$	835,507					$	785,778
Prior years			( 17,652 )						( 5,335 )						( 54,167 )
Total incurred			$	869,467					$	830,172					$	731,611
Losses and loss settlement expense payments for claims occurring during
Current year			$	354,635					$	333,975					$	306,032
Prior years			421,762						398,368						334,502
Total paid			$	776,397					$	732,343					$	640,534
Net liability for losses and loss settlement expenses at end of year			$	1,446,288					$	1,353,218					$	1,255,389
Ceded loss and loss settlement expenses			131,843						68,536						57,094
Gross liability for losses and loss settlement expenses at end of year			$	1,578,131					$	1,421,754					$	1,312,483

There are a multitude of factors that can impact loss reserve development. Those factors include, but are not limited to: historical data, the potential impact of various loss reserve development factors and trends including historical loss experience, legislative enactments, judicial decisions, legal developments in imposition of damages, experience with alternative dispute resolution, results of our medical bill review process, the potential impact of salvage and subrogation and changes and trends in general economic conditions, including the effects of inflation. All of these factors influence our estimates of required reserves and for long tail lines these factors can change over the course of the settlement of the claim. However, there is no precise method for evaluating the specific monetary impact of any individual factor on the development of reserves.

Generally, we base reserves for each claim on the estimated ultimate exposure for that claim. We believe that it is appropriate and reasonable to establish a best estimate for reserves within a range of reasonable estimates, especially when we are reserving for claims for bodily injury, disabilities and similar claims, for which settlements and verdicts can vary widely. Our reserving philosophy may result in favorable reserve development in future years that will decrease losses and loss settlement expenses for prior year claims in the year of adjustment. We realize that this

---

philosophy, coupled with what we believe to be aggressive and successful claims management and loss settlement practices, has resulted in year-to-year redundancies in reserves. We believe our approach produces recorded reserves that are reasonably consistent as to their relative position within a range of reasonable reserves from year-to-year. However, conditions and trends that have affected the reserve development for a given year do change. Therefore, such development cannot be used to project future reserve redundancies or deficiencies.

We are not aware of any significant contingent liabilities related to environmental issues. Because of the type of property coverage we write, we have potential exposure to environmental pollution, mold and asbestos claims. Our underwriters are aware of these exposures and use riders or endorsements to limit exposure.

Reserve Development

The significant drivers of the favorable reserve development in 2020 were workers' compensation which had $ 25,428 favorable development followed by commercial fire and allied lines which had $ 10,655 favorable development, fidelity and surety with $ 2,068 favorable development and personal automobile with $ 1,851 favorable development. The favorable development for workers' compensation was primarily from reductions in reserves for reported claims which were more than sufficient to offset paid loss. Reductions in reserves for IBNR claims also contributed favorable development in addition to LAE where reductions in reserves more than sufficient to offset payments. Commercial fire and allied lines developed favorably because reductions in reserves for reported claims combined with reductions in reserves for IBNR claims were more than sufficient to offset paid loss. LAE also contributed favorable development with reductions in reserves more than sufficient to offset payments. Fidelity and surety loss developed favorably because a reduction in reserves for IBNR claims was more than sufficient to offset both paid loss and increases in reserves for reported claims. The personal automobile line of business developed favorably because reductions of reserves for reported claims combined with reductions of reserves for IBNR claims were more than sufficient to offset paid loss. LAE also contributed favorable development with reductions in reserves more than sufficient to offset payments. Much of the favorable development was offset by unfavorable development from three lines with the largest contribution coming from commercial liability with $ 12,845 , reinsurance assumed with $ 5,972 and commercial automobile with $ 4,024 . The commercial liability line of business experienced unfavorable development due to paid loss which was greater than reductions in reserves for unpaid loss. LAE developed favorably and partially offset the unfavorable loss development. The unfavorable development for reinsurance assumed was due to paid loss which was greater than reductions in reserves for unpaid loss. The commercial automobile line of business experienced unfavorable development because paid loss was greater than reductions in reserves for unpaid loss, but a portion of the unfavorable loss development was offset by favorable development from LAE where payments were more than offset by reductions of reserves for unpaid loss adjustment expense. On an all lines combined basis, favorable development is attributable to LAE which continues to benefit from additional litigation management efforts.

The significant drivers of the favorable reserve development in 2019 were our workers' compensation partially offset by unfavorable development primarily for commercial liability and commercial automobile. Workers' compensation favorable development was primarily from reserve reductions for both reported claims and loss IBNR which were more than sufficient to offset paid loss with additional favorable development coming from LAE, where the reduction in LAE reserves was more than sufficient to offset paid LAE. The other lines with relatively small contributions to development, either favorable or unfavorable, generally experienced favorable development for LAE. Commercial liability unfavorable development was primarily from paid loss which exceeded reserve reductions for both reported claims and loss IBNR; additional unfavorable development came from LAE where paid LAE exceeded reductions of LAE reserves. Commercial liability and commercial automobile continue to be adversely affected by reserve strengthening for both reported claims and loss IBNR in response to an increase in severity of claims. Commercial liability continues to receive umbrella claims which flow in from commercial automobile.

The significant drivers of the favorable reserve development in 2018 were our workers' compensation, reinsurance assumed, commercial automobile and fidelity and surety. During 2018 the only individual line with unfavorable development was commercial liability. Workers' compensation favorable development was primarily from reserve reductions for both reported claims and loss IBNR which were more than sufficient to offset paid loss with

---

---

The following tables provide information about incurred and paid losses and loss settlement expense development as of December 31, 2020, net of reinsurance, as well as cumulative development, cumulative claim frequency and IBNR liabilities. Claim data for Mercer Insurance Group, Inc., which was acquired on March 28, 2011, is presented retrospectively.

The cumulative number of reported claims, for calendar year 2020, 2019 and 2018, are counted for all lines of business on a per claimant per coverage basis and a single event may result in multiple claims due to the involvement of multiple individual claimants and / or multiple independent coverages. Claim counts for calendar years 2016 and prior are counted on a per claim and per coverage basis. Claim counts include open claims, claims that have been paid and closed, and reported claims that have been closed without the need for any payment.

Line of business: Commercial other liability
			Incurred losses and allocated loss settlement expenses, net of reinsurance																																	As of December 31, 2020
			For the years ended December 31,																																	Total of incurred but not reported liabilities plus expected development on reported claims			Cumulative development			Cumulative number of reported claims
Accident Year			2011			2012			2013			2014			2015			2016			2017			2018			2019			2020
			(Unaudited)
2011			$	81,522		$	64,738		$	88,371		$	88,200		$	79,591		$	80,801		$	81,463		$	80,338		$	81,694		$	81,394					$	11,202		( 128 )			5,634
2012						100,389			96,158			94,195			91,980			92,537			91,346			89,731			91,571			89,900						12,862			( 10,489 )			5,841
2013									104,982			91,460			90,502			86,119			85,399			88,816			86,082			85,999						3,498			( 18,983 )			6,406
2014												118,928			117,958			106,486			97,809			102,487			105,507			107,417						4,907			( 11,511 )			6,570
2015															137,386			125,307			120,005			127,091			129,945			131,325						10,405			( 6,061 )			7,732
2016																		139,144			130,041			136,275			142,397			140,784						15,698			1,640			8,882
2017																					139,602			139,032			152,547			156,369						24,426			16,767			8,883
2018																								163,059			172,894			176,496						34,486			13,437			8,590
2019																											149,173			169,344						46,518			20,171			7,537
2020																														171,013						83,792						4,478
																											Total			$	1,310,041

---

---

---

---

---

---

---

---

---

---

The reconciliation of the net incurred and loss development tables to the liability for unpaid losses and loss settlement expenses in the consolidated statement of financial position is as follows.

						December 31, 2020
Net outstanding liabilities for unpaid losses and allocated loss settlement expenses:
Commercial other liability						$	585,811
Commercial fire and allied						129,290
Commercial automobile						434,293
Commercial workers' compensation						116,050
Personal						39,210
All other lines						43,045
Net outstanding liabilities for unpaid losses and allocated loss settlement expenses						1,347,699
Net outstanding liabilities for unpaid unallocated loss settlement expenses						97,379
Fair value adjustment (purchase accounting adjustment for Mercer acquisition)						1,210
Liabilities for unpaid losses and loss settlement expenses, net of reinsurance						1,446,288
Reinsurance recoverable on unpaid losses and allocated loss settlement expenses:
Commercial other liability						29,497
Commercial fire and allied						42,481
Commercial automobile						3,334
Commercial workers' compensation						47,130
Personal						8,867
All other lines						1,692
Reinsurance recoverable on unpaid losses and allocated loss settlement expenses						133,001
Reinsurance fair value amortization (purchase accounting adjustment for Mercer acquisition)						( 1,158 )
Total reinsurance recoverable on unpaid losses and loss settlement expenses						131,843
Total gross liability for unpaid losses and loss settlement expenses						$	1,578,131

---

The following is supplementary information about average historical claims duration as of December 31, 2020.

			Average annual percentage payout of incurred claims by age, net of reinsurance
			Year 1			Year 2			Year 3			Year 4			Year 5			Year 6			Year 7			Year 8			Year 9			Year 10
			(Unaudited)
Commercial other liability			9.6		%	16.0		%	18.0		%	16.8		%	12.3		%	7.2		%	4.3		%	2.7		%	1.7		%	1.9		%
Commercial fire and allied			64.6		%	21.4		%	4.8		%	3.8		%	2.2		%	1.3		%	0.7		%	0.7		%	0.2		%	0.1		%
Commercial automobile			35.9		%	20.3		%	15.5		%	12.5		%	7.5		%	3.1		%	1.7		%	0.9		%	1.2		%	0.2		%
Commercial workers' compensation			29.5		%	32.4		%	14.8		%	7.6		%	3.5		%	2.5		%	1.5		%	1.2		%	0.9		%	2.2		%
Personal			71.3		%	19.7		%	3.8		%	2.4		%	0.7		%	0.7		%	0.1		%	0.1		%	0.1		%	—		%

---

Statutory capital and surplus in regards to policyholders at December 31, 2020, 2019 and 2018 and statutory net income (loss) for the years then ended are as follows:

			Statutory Capital and Surplus						Statutory Net Income (Loss)
2020
Property and casualty business			$	671,599					$	( 17,705 )
2019
Property and casualty business			$	707,571					$	( 22,393 )
2018
Property and casualty business			$	774,257					$	219,065
Life, accident and health business (1)			—						3,548

(1) The 2018 Life, accident and health business only includes results prior to the closing of the sale of United Life Insurance Company, which closed on March 30, 2018. Prior to the closing of the sale, United Fire & Casualty Company owned United Life Insurance Company, accordingly, the property and casualty statutory capital and surplus includes life, accident and health statutory capital and surplus, and therefore represents our total consolidated statutory capital and surplus.

State insurance holding company laws and regulations generally require approval from the insurer's domicile state insurance Commissioner for any material transaction or extraordinary dividend. For property and casualty insurers, a material transaction is defined as any sale, loan, exchange, transfer or guarantee with an affiliate where the aggregate value of the transaction exceeds 25 percent of the insurer's policyholders' surplus or three percent of its admitted assets (measured at December 31 of the preceding year), whichever is less. For life insurers, a material transaction with an affiliate is defined as a transaction with an aggregate value exceeding three percent of the life insurer's admitted assets (measured at December 31 of the preceding year).

The Company executed a $ 50,000 surplus note private placement transaction on December 15, 2020 among UF&C and Federated Mutual and Federated Life. See additional details in Note 14 "Debt."

State laws and regulations generally limit the amount of funds that an insurance company may distribute to a parent as a dividend without Commissioner approval. As a holding company with no independent operations of its own, United Fire Group, Inc. relies on dividends received from its insurance company subsidiaries in order to pay dividends to its common shareholders. Dividends payable by our insurance subsidiaries are governed by the laws in the states in which they are domiciled. In all cases, these state laws permit the payment of dividends only from earned surplus arising from business operations. For example, under Iowa law, the maximum dividend or distribution that may be paid within a 12-month period without prior approval of the Iowa Insurance Commissioner is generally restricted to the greater of 10 percent of statutory surplus as of the preceding December 31, or net income of the preceding calendar year on a statutory basis, not greater than earned statutory surplus. Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at December 31, 2020, our insurance company subsidiary, United Fire & Casualty, is able to make a minimum of $ 66.8 million in dividend payments without prior regulatory approval. At December 31, 2020, we were in compliance with applicable state laws and regulations.

We paid dividends to our common shareholders of $ 28,526 , $ 32,662 and $ 105,408 in 2020, 2019 and 2018, respectively. Payments of any future dividends and the amounts of such dividends, however, will depend upon factors such as net income, financial condition, capital requirements, and general business conditions. We will only pay dividends if declared by our Board of Directors, out of funds legally available, and subject to any other restrictions that may be applicable to us.

In 2020, 2019 and 2018, United Fire & Casualty Company received dividends from its wholly owned subsidiaries of $ 62,400 , $ 6,300 and $ 8,500 , respectively. In 2020, 2019 and 2018, United Fire & Casualty Company paid dividends

---

to United Fire Group, Inc. totaling $ 4,000 , $ 57,000 and $ 105,000 , respectively. These intercompany dividend payments are eliminated for reporting in our Consolidated Financial Statements.

Our property and casualty subsidiaries are required to prepare and file statutory-basis financial statements in conformity with the National Association of Insurance Commissioners ("NAIC") Accounting Practices and Procedures Manual, subject to any deviations prescribed or permitted by the applicable insurance commissioner and/or director. The accounting principles used to prepare these statutory-basis financial statements follow prescribed or permitted accounting practices that differ from GAAP. Prescribed statutory accounting principles include state laws, regulations and general administrative rules issued by the state of domicile, as well as a variety of publications and manuals of the NAIC. Permitted accounting practices encompass all accounting practices not prescribed, but allowed by the state of domicile. No material permitted accounting practices were used to prepare our statutory-basis financial statements during 2020, 2019 and 2018. Statutory accounting principles primarily differ from GAAP in that policy acquisition and certain sales inducement costs are charged to expense as incurred, goodwill is amortized, life insurance reserves are established based on different actuarial assumptions and the values reported for investments, pension obligations and deferred taxes are established on a different basis.

We are directed by the state insurance departments' solvency regulations to calculate a required minimum level of statutory capital and surplus based on insurance risk factors. The risk-based capital results are used by the NAIC and state insurance departments to identify companies that merit regulatory attention or the initiation of regulatory action. United Fire & Casualty Company and its property and casualty insurance subsidiaries and affiliates had statutory capital and surplus in regards to policyholders well in excess of their required levels at December 31, 2020.

The Tax Act was enacted on December 22, 2017. The Tax Act significantly revised the U.S. corporate income tax laws including lowering the U.S. federal corporate tax rate from 35 percent to 21 percent, effective January 1, 2018.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. As of December 31, 2018 we have completed accounting for the tax effects of enactment of the Tax Act and no adjustments were made during the measurement period.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100 percent of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has considered the implications of the CARES Act on its tax provision and has included an income tax benefit o f $ 18.6 million as the result of this Act.

---

Federal income tax expense (benefit) from both continuing and discontinued operations is composed of the following:

Years Ended December 31,			2020						2019						2018
Current			$	( 46,861 )					$	( 7,843 )					$	18,493
Deferred			( 9,948 )						9,902						( 21,791 )
Total			$	( 56,809 )					$	2,059					$	( 3,298 )

A reconciliation of income tax expense (benefit) computed at the applicable federal tax rate of 21.0 percent in 2020, 2019 and 2018 to the amount recorded in the accompanying Consolidated Statements of Income and Comprehensive Income is as follows:

Years Ended December 31,			2020						2019						2018
Computed expected income tax expense (benefit)			$	( 35,598 )					$	3,544					$	5,114
The CARES Act			( 18,562 )						—						—
Tax-exempt municipal bond interest income			( 3,669 )						( 3,961 )						( 4,235 )
Nontaxable dividend income			( 517 )						( 594 )						( 591 )
Goodwill impairment			3,169						—						—
Valuation allowance reduction			—						—						( 329 )
Compensation			695						1,638						( 497 )
Reinsurance			—						998						—
Research and development credit			( 2,045 )						—						—
Other, net			( 282 )						434						( 2,760 )
Consolidated federal income tax expense (benefit)			$	( 56,809 )					$	2,059					$	( 3,298 )
Reconciliation of consolidated federal income tax expense (benefit) from:
Continuing operations			$	( 56,809 )					$	2,059					$	( 11,405 )
Gain on sale of discontinued operations			—						—						7,544
Discontinued operations			—						—						563
Consolidated federal income tax expense (benefit)			$	( 56,809 )					$	2,059					$	( 3,298 )

---

We measure certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is 21.0 percent. The significant components of our net deferred tax liability at December 31, 2020 and 2019 are as follows:

December 31,			2020						2019
Deferred tax liabilities
Net unrealized appreciation on investment securities:
Equity securities			$	33,096					$	48,652
All other securities			22,082						12,568
Deferred policy acquisition costs			18,289						19,801
Investments in partnerships			964						2,156
Prepaid pension cost			4,553						4,441
Net bond discount accretion			383						357
Depreciation			4,187						1,908
Revaluation of investment basis (1)			325						377
Identifiable intangible assets (1)			1,391						1,540
Capitalized Software			4,891						—
Other			1,568						1,416
Gross deferred tax liability			91,729						$	93,216
Deferred tax assets
Financial statement reserves in excess of income tax reserves			$	23,851					$	20,845
Unearned premium adjustment			18,979						20,816
Net operating loss carryforwards			—						1,708
Underfunded benefit plan obligation			4,295						9,072
Post-retirement benefits other than pensions			9,533						10,785
Other-than-temporary impairment of investments			1,974						2,094
Compensation expense related to stock options			2,307						2,394
Nonqualified deferred compensation			2,066						1,623
Other			3,795						3,293
Deferred tax asset			$	66,800					$	72,630
Net deferred tax liability			$	24,929					$	20,586

(1) Related to our acquisition of Mercer Insurance Group, Inc.

We offer various benefits to our employees including a noncontributory defined benefit pension plan, an employee/retiree health and dental benefit plan.

Pension and Post-Retirement Benefit Plans

We offer a noncontributory defined benefit pension plan in which all of our employees are eligible to participate after they have completed one year of service, attained 21 years of age and have met the hourly service requirements. Retirement benefits under our pension plan are based on the number of years of service and level of compensation. Our policy to fund the pension plan on a current basis to not less than the minimum amounts required by the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended, is to assure that plan assets will be adequate to provide retirement benefits. We estimate that we will contribute approximately $ 10,000 to the pension plan in 2021.

In December 2020, the Company made the decision to amend the noncontributory defined benefit pension plan. The Company plans to amend the pension plan by discontinuing the noncontributory defined benefit pension plan and put in place a noncontributory cash balance pension plan effective July 1, 2021. All benefits under the noncontributory defined benefit pension plan will stop accruing on June 30, 2021.

---

We also offer a health and dental benefit plan to all of our eligible employees and retirees that consists of two programs: (1) the self-funded employee health and dental benefit plan and (2) the self-funded (pre-65) and fully-funded (post-65) retiree health and dental benefit plan (the "post-retirement benefit plan"). Effective January 1, 2017, there was a plan amendment, which included the following changes: eliminated the pre-65 retirement plan with a $ 500 hundred dollar deductible; for retirements after January 1, 2017, the retiree will pay 50 percent of the lower cost supplemental plan if they are 65 or older and 100 percent of the premium if less than 65; and removed spousal coverage after the death of the participant. The financial impact of the changes were reflected in accumulated other comprehensive income at December 31, 2016. Effective January 1, 2019, there was a plan amendment, which requires spouses to pay 100 percent of the medical, dental & vision premiums and the subsidy for the post-65 retirees, which is based off the lowest cost Medicare Supplement Plan (Plan 1). The financial impact of the changes were reflected in accumulated other comprehensive income at December 31, 2019.

Subsequent to the completion of the financial statements as of December 31, 2020, the Company made the decision to change the post-retirement benefit plan to a voluntary plan funded exclusively by participants, commencing at the start of 2023. The impact of this decision will be reflected in the financial statements subsequent to December 31, 2020. As of December 31, 2020, the post-retirement benefit obligation was $ 31,666 . This benefit obligation, along with the unrecognized prior service costs, will be released into the Consolidated Statement of Income and Other Comprehensive Income over the next two years.

The post-retirement benefit plan provides health and dental benefits to our retirees (and covered dependents) who have met the service and participation requirements stipulated by the post-retirement benefit plan. The third party administrators for the post-retirement benefit plan are responsible for making medical and dental care benefit payments. Participants are required to submit claims for reimbursement or payment to the claims administrator within twelve months after the end of the calendar year in which the charges were incurred. An unfunded benefit obligation is reported for the post-retirement benefit plan in the accompanying Consolidated Balance Sheets.

Investment Policies and Strategies

Our investment policy and objective for the pension plan is to generate long-term capital growth and income by way of a diversified investment portfolio along with appropriate employer contributions, which will allow us to provide for the pension plan's benefit obligation.

The investments held by the pension plan at December 31, 2020 include the following asset categories:

• Fixed income securities, which may include bonds, and convertible securities;

• Equity securities, which may include various types of stock, such as large-cap, mid-cap, small-cap, and international stocks;

• Pooled separate accounts, which includes two separate funds, a core plus bond separate account and a real estate separate account;

• An arbitrage fund, which is a fund that takes advantage of price discrepancies, primarily equity securities, for the same asset in different markets;

• A group annuity contract that is administered by United Life, a former subsidiary of United Fire; and

• Cash and cash equivalents, which include money market funds.

We have an internal investment/retirement committee, which includes our Chief Executive Officer, Chief Investment Officer, and Chief Operating Officer, all of whom receive monthly information on the value of the pension plan assets and their performance. Quarterly, the committee meets to review and discuss the performance of the pension plan assets as well as the allocation of investments within the pension plan.

As of December 31, 2020, we had six external investment managers that are allowed to exercise investment discretion, subject to limitations, if any, established by the investment/retirement committee. We utilize multiple

---

investment managers in order to maximize the pension plan's investment return while mitigating risk. None of our investment managers uses leverage in managing the pension plan. Annually, the investment/retirement committee meets with each investment manager to review the investment manager's goals, objectives and the performance of the assets they manage. The decision to establish or terminate a relationship with an investment manager is at the discretion of our investment/retirement committee.

We consider historical experience for comparable investments and the target allocations we have established for the various asset categories of the pension plan to determine the expected long-term rate of return, which is an assumption as to the average rate of earnings expected on the pension plan funds invested, or to be invested, by the pension plan, to provide for the settlement of benefits included in the projected pension benefit obligation. Investment securities, in general, are exposed to various risks, such as fluctuating interest rates, credit standing of the issuer of the security and overall market volatility. Annually, we perform an analysis of expected long-term rates of return based on the composition and allocation of our pension plan assets and recent economic conditions.

The following is a summary of the pension plan's actual and target asset allocations at December 31, 2020 and 2019 by asset category:

																											Target
Pension Plan Assets			2020						% of Total						2019						% of Total						Allocation
Fixed maturity securities - corporate bonds			$	21,718					8.7		%				$	13,250					6.7		%				0		%	-			15		%
Redeemable preferred stock			3,534						1.4						2,929						1.5						0		%	-			10		%
Equity securities			149,413						60.0						117,117						58.7						50		%	-			70		%
Pooled separate accounts
Core plus bond separate account fund			26,266						10.6						20,505						10.3						0		%	-			40		%
U.S. property separate account fund			22,269						9.0						22,114						11.1						0		%	-			25		%
Arbitrage fund			9,873						4.0						9,245						4.6						0		%	-			10		%
United Life annuity			11,398						4.6						10,855						5.4						0		%	-			10		%
Cash and cash equivalents			4,264						1.7						3,451						1.7						0		%	-			10		%
Total plan assets			$	248,735					100.0		%				$	199,466					100.0		%

The investment return expectations for the pension plan are used to develop the asset allocation based on the specific needs of the pension plan. Accordingly, equity securities comprise the largest portion of our pension plan assets, as they yield the highest rate of return. The United Life annuity, which is the fifth largest asset category and was originally written by our former life insurance subsidiary in 1976, provides a guaranteed rate of return. The interest rate on the group annuity contract is determined annually.

The availability of assets held in cash and cash equivalents enables the pension plan to mitigate market risk that is associated with other types of investments and allows the pension plan to maintain liquidity both for the purpose of making future benefit payments to participants and their beneficiaries and for future investment opportunities.

Valuation of Investments

Fixed Maturity and Equity Securities

Investments in equity securities are stated at fair value based upon quoted market prices reported on recognized securities exchanges on the last business day of the year. Purchases and sales of securities are recorded as of the trade date.

The fair value of fixed maturity securities categorized as Level 2 is determined by management based on fair value

information reported in the custodial statements received from Plan’s investment managers, which is derived from

recent trading activity of the underlying security in the financial markets. These securities represent various taxable bonds held by the pension plan. These securities categorized as Level 2 are valued in the same manner as described in Note 3 "Fair Value of Financial Instruments" and have the same controls in place.

---

Pooled Separate Accounts

The pension plan invests in two pooled separate account funds, a core plus bond separate account fund and a U.S. property separate account fund. Investments in the core plus bond separate account fund are stated at fair value as provided by the administrator of the fund based on the fair value of the underlying assets owned by the fund. The fair value measurement is classified within Level 2 of the fair value hierarchy. The fair value of the investments in the U.S. property separate account fund is provided by the administrator of the fund based on the net asset value of the fund. The net asset value is based on the fair value of the underlying properties included in the fund. The fair value of the underlying properties are based on property appraisals conducted by an independent third party. The fair value measurement is classified within Level 3 of the fair value hierarchy. We have not adjusted the net asset value provided by the custodian for either fund.

Arbitrage Fund

The fair value of the arbitrage fund is determined based on its net asset value, which is obtained from the custodian and determined monthly with issuances and redemptions of units of the fund made, based on the net asset value per unit as determined on the valuation date. We have not adjusted the net asset value provided by the custodian.

United Life Annuity

The United Life group annuity contract, which is a deposit administration contract, is stated at contract value as determined by United Life. Under the group annuity contract, the plan's investment account is credited with compound interest on the average account balance for the year. The interest rate is equivalent to the ratio of net investment income to mean assets of United Life, net of investment expenses.

Cash and Cash Equivalents

Cash and cash equivalents primarily consist of insured cash and money market funds held with various financial institutions. Interest is earned on a daily basis. The fair value of these funds approximates their cost basis due to their short-term nature.

Fair Value Measurement

The following tables present the categorization of the pension plan's assets measured at fair value on a recurring basis at December 31, 2020 and 2019:

									Fair Value Measurements
Description			December 31, 2020						Level 1						Level 2						Level 3
Fixed maturity securities - corporate bonds			$	21,718					$	—					$	21,718					$	—
Redeemable preferred stock			3,534						3,534						—						—
Equity securities			149,413						149,413						—						—
Pooled separate accounts
Core plus bond separate account fund			26,266						—						26,266						—
U.S. property separate account fund			22,269						—						—						22,269
Arbitrage fund			9,873						—						9,873						—
Money market funds			4,260						4,260						—						—
Total assets measured at fair value			$	237,333					$	157,207					$	57,857					$	22,269

---

									Fair Value Measurements
Description			December 31, 2019						Level 1						Level 2						Level 3
Fixed maturity securities - corporate bonds			$	13,250					$	—					$	13,250					$	—
Redeemable preferred stock			2,929						2,929						—						—
Equity securities			117,117						117,117						—						—
Pooled separate accounts
Core plus bond separate account fund			20,505						—						20,505						—
U.S. property separate account fund			22,114						—						—						22,114
Arbitrage fund			9,245						—						9,245						—
Money market funds			3,448						3,448						—						—
Total assets measured at fair value			$	188,608					$	123,494					$	43,000					$	22,114

There were no transfers of assets in or out of Level 1 or Level 2 during the period.

The fair value of investments categorized as Level 1 is based on quoted market prices that are readily and regularly available.

The fair value of fixed maturity securities categorized as Level 2 is determined by management based on fair value information reported in the custodial statements, which is derived from recent trading activity of the underlying security in the financial markets. These securities represent various taxable bonds held by the pension plan. These securities categorized as Level 2 are valued in the same manner as described in Part II, Item 8, Note 3 "Fair Value of Financial Instruments" and have the same controls in place.

The fair value of the arbitrage fund and bond and mortgage pooled separate account fund are categorized as Level 2 since there are no restrictions as to the pension plan's ability to redeem its investment at the net asset value of the fund as of the reporting date.

The following tables provide a summary of the changes in fair value of the pension plan's Level 3 securities:

			U.S. property separate account fund
Balance at January 1, 2020			$	22,114
Unrealized gains			155
Balance at December 31, 2020			$	22,269

			U.S. property separate account fund
Balance at January 1, 2019			$	20,841
Unrealized gains			1,273
Balance at December 31, 2019			$	22,114

Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires us to make various estimates and assumptions that affect the reporting of net periodic benefit cost, plan assets and plan obligations for each plan at the date of the financial statements. Actual results could differ from these estimates. One significant estimate relates to the calculation of the benefit obligation for each plan. We annually establish the discount rate, which is an estimate of the interest rate at which these benefits could be effectively settled, that is used to determine the present value of the respective plan's benefit obligations as of December 31. In estimating the discount rate, we look to rates of return on high-quality, fixed-income investments currently available and expected to be available during the period to maturity of the respective plan's benefit obligations.

---

The Society of Actuaries ("SOA") is an actuarial organization that periodically reviews mortality data and publishes mortality tables and improvement scales. In October 2019, the SOA released the Pri-2012 mortality tables for private sector retirement plans in the United States. The mortality assumptions are based on the Pri-2012 white collar base rate mortality projected generationally using the Principal Mortality Improvement Scale ("Principal 2016-10"). The Principal 2016-10 scale is based on latest mortality improvement scale, the MP-2020 model issued by the SOA with a few user-selected assumptions: 10- year convergence period on age and cohort and long-term rate assumptions using sex-distinct and age based rated developed from Social Security Trustee Reports. We have reviewed these updated tables and have updated the mortality assumptions based on this information and also based on research provided by our external actuaries. We will continue to monitor mortality assumptions and make changes as appropriate to reflect additional research and our resulting best estimate of future mortality rates.

Assumptions Used to Determine Benefit Obligations

The following actuarial assumptions were used to determine the reported plan benefit obligations at December 31:

Weighted-average assumptions as of			Pension Benefits												Post-retirement Benefits
December 31,			2020						2019						2020						2019
Discount rate			2.58		%				3.32		%				2.58		%				3.32		%
Rate of compensation increase			2.75						3.00						N/A						N/A

Declining interest rates resulted in a decrease in the discount rates we use to value our respective plan's benefit obligations at December 31, 2020 compared to December 31, 2019.

Assumptions Used to Determine Net Periodic Benefit Cost

The following actuarial assumptions were used at January 1 to determine our reported net periodic benefit costs for the year ended December 31:

Weighted-average assumptions as of			Pension Benefits																		Post-retirement Benefits
January 1,			2020						2019						2018						2020						2019						2018
Discount rate			3.32		%				4.18		%				3.65		%				3.32		%				4.18		%				3.65		%
Expected long-term rate of return on plan assets			6.70						6.70						6.70						N/A						N/A						N/A
Rate of compensation increase			3.00						3.00						3.00						N/A						N/A						N/A

Assumed Health Care Cost Trend Rates

			Health Care Benefits												Dental Claims
Years Ended December 31,			2020						2019						2020						2019
Health care cost trend rates assumed for next year			7.00		%				6.75		%				3.00		%				4.00		%
Rate to which the health care trend rate is assumed to decline (ultimate trend rate)			4.50		%				4.50		%				N/A						N/A
Year that the rate reaches the ultimate trend rate			2031						2030						N/A						N/A

Assumed health care cost trend rates have a significant effect on the amounts reported for the post-retirement benefit plan. A 1.0 percent change in assumed health care cost trend rates would have the following effects:

						1% Increase						1% Decrease
Effect on the net periodic post-retirement health care benefit cost						$	643					$	( 494 )
Effect on the accumulated post-retirement benefit obligation						5,520						( 4,451 )

---

Benefit Obligation and Funded Status

The following table provides a reconciliation of benefit obligations, plan assets and funded status of our plans:

			Pension Benefits												Post-retirement Benefits
Years Ended December 31,			2020						2019						2020						2019
Reconciliation of benefit obligation
Benefit obligation at beginning of year			$	252,374					$	202,156					$	31,001					$	30,973
Service cost			10,829						7,989						1,728						1,823
Interest cost			8,266						8,320						1,014						1,274
Actuarial loss (gain)			38,920						39,598						( 1,084 )						( 1,806 )
Adjustment for plan amendment			( 32,175 )						—						—						—
Benefit payments			( 6,470 )						( 5,689 )						( 993 )						( 1,263 )
Benefit obligation at end of year (1)			$	271,744					$	252,374					$	31,666					$	31,001
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year			$	199,466					$	164,819					$	—					$	—
Actual return on plan assets			45,739						36,336						—						—
Employer contributions			10,000						4,000						993						1,263
Benefit payments			( 6,470 )						( 5,689 )						( 993 )						( 1,263 )
Fair value of plan assets at end of year			$	248,735					$	199,466					$	—					$	—
Funded status at end of year			$	( 23,009 )					$	( 52,908 )					$	( 31,666 )					$	( 31,001 )

(1) For the pension plan, the benefit obligation is the projected benefit obligation. For the post-retirement benefit plan, the benefit obligation is the accumulated post-retirement benefit obligation.

Our accumulated pension benefit obligation was $ 271,515 and $ 226,196 at December 31, 2020 and 2019, respectively.

The following table displays the effect that the unrecognized prior service cost and unrecognized actuarial loss of our plans had on accumulated other comprehensive income ("AOCI"), as reported in the accompanying Consolidated Balance Sheets:

						Pension Benefits												Post-retirement Benefits
Years Ended December 31						2020						2019						2020						2019
Amounts recognized in AOCI
Unrecognized prior service cost						$	( 32,175 )					$	—					$	( 20,863 )					$	( 28,947 )
Unrecognized actuarial (gain) loss						66,864						64,059						6,627						8,086
Total amounts recognized in AOCI						$	34,689					$	64,059					$	( 14,236 )					$	( 20,861 )

We anticipate amortization of the net actuarial losses for our pension plan in 2021 to be $ 3,995 . We anticipate amortization of the net actuarial losses for our post-retirement benefit plan in 2021 to be $ 260

---

Net Periodic Benefit Cost

The components of the net periodic benefit cost for our pension and post-retirement benefit plans are as follows:

			Pension Plan																		Post-retirement Benefit Plan
Years Ended December 31,			2020						2019						2018						2020						2019						2018
Net periodic benefit cost
Service cost			$	10,829					$	7,989					$	8,701					$	1,728					$	1,823					$	2,998
Interest cost			8,266						8,320						7,500						1,014						1,274						2,009
Expected return on plan assets			( 13,539 )						( 10,784 )						( 10,502 )						—						—						—
Amortization of prior service cost			—						—						—						( 8,084 )						( 8,684 )						( 5,409 )
Amortization of net loss			3,914						3,603						4,287						375						894						2,355
Net periodic benefit cost			$	9,470					$	9,128					$	9,986					$	( 4,967 )					$	( 4,693 )					$	1,953

A portion of the service cost component of net periodic pension and postretirement benefit costs are capitalized and amortized as part of deferred acquisition costs and is included in the income statement line titled "amortization of deferred policy acquisition costs." The portion not related to the compensation and the other components of net periodic pension and postretirement benefit costs are included in the income statement line titled "other underwriting expenses."

Projected Benefit Payments

The following table summarizes the expected benefits to be paid from our plans over the next 10 years:

						2021						2022						2023						2024						2025						2026 - 2030
Pension benefits						$	7,330					$	7,920					$	8,860					$	9,850					$	10,970					$	67,280
Post-retirement benefits						$	940					$	990					$	1,010					$	1,050					$	1,090					$	6,520

Profit-Sharing Plan

We have a profit-sharing plan in which employees who meet service requirements are eligible to participate. The amount of our contribution is discretionary and is determined annually, but cannot exceed the amount deductible for federal income tax purposes. Our contribution to the profit-sharing plan for 2020, 2019 and 2018, was $ 4,637 , $ 4,096 , and $ 7,607 , respectively.

---

Non-Qualified Employee Stock Award Plan

The United Fire Group, Inc. 2008 Stock Plan (the "2008 Stock Plan") authorized the issuance of restricted and unrestricted stock awards, stock appreciation rights, incentive stock options, and non-qualified stock options for up to 1,900,000 shares of United Fire common stock to employees. In May 2014, the Registrant's shareholders approved an additional 1,500,000 shares of United Fire common stock issuable at any time and from time to time pursuant to the 2008 Stock Plan, among other amendments, and renamed such plan as the United Fire Group, Inc. Stock Plan (as amended, the "Stock Plan"). At December 31, 2020, there were 700,680 authorized shares remaining available for future issuance. The Stock Plan is administered by the Board of Directors, which determines those employees who will receive awards, when awards will be granted, and the terms and conditions of the awards. The Board of Directors may also take any action it deems necessary and appropriate for the administration of the Stock Plan. Pursuant to the Stock Plan, the Board of Directors may, at its sole discretion, grant awards to our employees who are in positions of substantial responsibility with United Fire.

Options granted pursuant to the Stock Plan are granted to buy shares of United Fire's common stock at the market value of the stock on the date of grant. Options granted prior to March 2017 vest and are exercisable in installments of 20.0 percent of the number of shares covered by the option award each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. Options granted after March 2017 vest and are exercisable in installments of 33.3 percent of the number of shares covered by the option award each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. To the extent not exercised, vested option awards accumulate and are exercisable by the awardee, in whole or in part, in any subsequent year included in the option period, but not later than 10 years from the grant date. Restricted and unrestricted stock awards granted pursuant to the Stock Plan are granted at the market value of our common stock on the date of the grant. Restricted stock awards fully vest after 3 years or 5 years from the date of issuance, unless accelerated upon the approval of the Board of Directors, at which time United Fire common stock will be issued to the awardee. All awards are generally granted free of charge to the eligible employees of United Fire as designated by the Board of Directors.

The activity in the Stock Plan is displayed in the following table:

Authorized Shares Available for Future Award Grants			Year Ended December 31, 2020						From Inception to December 31, 2020
Beginning balance			834,910						1,900,000
Additional shares authorized			—						1,500,000
Number of awards granted			( 172,478 )						( 3,288,899 )
Number of awards forfeited or expired			38,248						589,579
Ending balance			700,680						700,680
Number of option awards exercised			30,900						1,474,089
Number of unrestricted stock awards granted			—						10,090
Number of restricted stock awards vested			63,600						164,378

Non-Qualified Non-Employee Director Stock Option and Restricted Stock Plan

The United Fire Group, Inc. Non-Employee Director Stock Plan (formerly known as the 2005 Non-Qualified Non- Employee Director Stock Option and Restricted Stock Plan) (the "Director Stock Plan") authorizes the issuance of restricted stock awards and non-qualified stock options to purchase shares of UFG's common stock to non-employee directors. On May 20, 2020, the Company’s shareholders approved amendments to the Director Stock Plan, previously approved by the Company’s Board of Directors, to (i) increase the number of shares available for future awards under the Director Stock Plan from 300,000 to 450,000 , (ii) extend the expiration date of the Director Stock Plan from December 31, 2020 to December 31, 2029, (iii) allow for the grant of awards of restricted stock units, and (iv) rename the Director Stock Plan as the "United Fire Group, Inc. Non-Employee Director Stock Plan." At December 31, 2020, we had 160,135 authorized shares available for future issuance.

The Board of Directors has the authority to determine which non-employee directors receive awards, when options and restricted stock shall be granted, the option price, the option expiration date, the date of grant, the vesting schedule of options or whether the options shall be immediately vested, the terms and conditions of options and

---

restricted stock (other than those terms and conditions set forth in the plan) and the number of shares of common stock to be issued pursuant to an option agreement or restricted stock agreement (subject to limits set forth in the plan). The Board of Directors may also take any action it deems necessary and appropriate for the administration of the Director Stock Plan.

The activity in the Director Stock Plan is displayed in the following table:

Authorized Shares Available for Future Award Grants			Year Ended December 31, 2020						From Inception to December 31, 2020
Beginning balance			34,863						300,000
Additional authorization			150,000						150,000
Number of awards granted			( 24,728 )						( 313,868 )
Number of awards forfeited or expired			—						24,003
Ending balance			160,135						160,135
Number of option awards exercised			14,728						133,820
Number of restricted stock awards vested			14,300						98,491

Stock-Based Compensation Expense

In 2020, 2019 and 2018, we recognized stock-based compensation expense of $ 4,991 , $ 6,152 and $ 5,249 , respectively. Stock-based compensation expense is recognized over the vesting period of the stock options.

As of December 31, 2020, we had $ 4,095 in stock-based compensation expense that has yet to be recognized through our results of operations. We expect this compensation to be recognized in subsequent years according to the following table, except with respect to awards that are accelerated by the Board of Directors, in which case we will recognize any remaining compensation expense in the period in which the awards are accelerated.

2021						$	2,624
2022						1,107
2023						269
2024						83
2025						12
Total						$	4,095

Analysis of Award Activity

The analysis below details the option award activity for 2020 and the awards outstanding at December 31, 2020, for both of our plans and ad hoc options, which were granted prior to the adoption of the other plans:

Options			Shares						Weighted-Average Exercise Price						Weighted-Average Remaining Life (in years)						Aggregate Intrinsic Value
Outstanding at January 1, 2020			829,714						$	35.39
Granted			110,470						44.08
Exercised			( 45,628 )						21.93
Cancelled/Forfeited			( 1,300 )						29.20
Outstanding at December 31, 2020			893,256						$	37.16					5.16						$	179
Exercisable at December 31, 2020			663,788						$	34.46					4.21						$	179

Intrinsic value is the difference between our share price on the last day of trading (i.e., December 31, 2020) and the price of the options when granted and represents the value that would have been received by option holders had they exercised their options on that date. These values change based on the fair market value of our shares. The intrinsic value of options exercised totaled $ 299 , $ 2,055 and $ 5,850 in 2020, 2019 and 2018, respectively.

---

The analysis below details the award activity for the restricted stock and restricted stock unit awards outstanding at December 31, 2020:

Restricted stock awards			Shares						Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2020			246,750						$	43.31
Granted			101,130						37.87
Vested			( 77,900 )						39.93
Forfeited			( 52,097 )						41.40
Non-vested at December 31, 2020			217,883						$	42.45

In 2020, 2019 and 2018 we recognized $ 3,734 , $ 4,659 and $ 3,877 , respectively, in compensation expense related to the restricted stock and restricted stock unit awards. At December 31, 2020, we had $ 3,074 in compensation expense that has yet to be recognized through our results of operations related to the restricted stock and restricted stock unit awards. The intrinsic value of the non-vested restricted stock and restricted stock unit awards outstanding totale d $ 5,469 and $ 10,165 at December 31, 2020 and 2019, respectively.

Assumptions

The weighted-average grant-date fair value of the options granted under our plans has been estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

December 31,			2020						2019						2018
Risk-free interest rate			1.4		%				2.57		%				2.79		%
Expected volatility			22.26		%				26.40		%				21.79		%
Expected option life (in years)			7						7						7
Expected dividends (in dollars)			$	1.32					$	1.24					$	1.12
Weighted-average grant-date fair value of options granted during the year (in dollars)			$	6.96					$	12.97					$	8.90

The following table summarizes information regarding the stock options outstanding and exercisable at December 31, 2020:

									Options Outstanding									Options Exercisable
Range of Exercise Prices									Number Outstanding (in shares)			Weighted-Average Remaining Contractual Life (in years)			Weighted-Average Exercise Price			Number Exercisable (in shares)			Weighted-Average Exercise Price
$	20.40		-			29.02			92,415			2.14			$	23.81		87,070			$	23.63
29.03			-			29.37			182,462			3.93			29.12			182,462			29.12
29.38			-			40.61			239,097			4.04			35.47			210,663			34.87
40.62			-			44.88			210,260			6.08			42.87			158,190			42.86
44.89			-			54.26			169,022			8.56			48.44			25,403			54.11
$	20.40		-			54.26			893,256			5.16			$	37.16		663,788			$	34.46

---

On September 19, 2017, the Company announced that it had agreed to sell its subsidiary, United Life, to Kuvare. The sale closed on March 30, 2018. As a result, our life insurance business was considered held for sale and reported as discontinued operations in the Consolidated Financial Statements and all comparable prior periods have been presented to conform to the current year presentation. For more information, refer to Note 17 "Discontinued Operations."

Prior to the announcement to sell United Life, we had two reportable business segments in our operations: property and casualty insurance and life insurance. The property and casualty insurance business has six domestic locations from which it conducts its business. The life insurance business operated from our home office. Because all of our insurance is sold domestically, we have no revenues allocable to foreign operations.

After the announcement of the sale of United Life, our continuing operations, the property and casualty insurance business, is reported as one reportable segment. The property and casualty insurance business profit or loss is consistent with consolidated reporting as disclosed on the Consolidated Statements of Income and Comprehensive Income. We analyze the property and casualty insurance business results based on profitability (i.e., loss ratios), expenses and return on equity. The Company's property and casualty insurance business was determined using a management approach to make decisions on operating matters, including allocating resources, assessing performance, determining which products to market and sell, determining distribution networks with insurance agents and monitoring the regulatory environment. The property and casualty insurance business products have similar economic characteristics and use a similar marketing and distribution strategy with our independent agents. The property and casualty insurance business geographic concentration did not change after the announcement of the sale of the life insurance business. We will continue to evaluate our continuing operations on the basis of both statutory accounting principles prescribed or permitted by our states of domicile and GAAP.

The accounting policies of our businesses are the same as those described in Note 1 "Summary of Significant Accounting Policies" to our Consolidated Financial Statements. We analyze results based on profitability (i.e., loss ratios), expenses and return on equity.

Property and Casualty Insurance Business

We write both commercial and personal lines of property and casualty insurance. We focus on our commercial lines, which represented 94.2 percent of our property and casualty insurance premiums earned for 2020. Our personal lines represented 5.8 percent of our property and casualty insurance premiums earned for 2020.

Commercial Lines Business

Our primary commercial policies are tailored business packages that include the following coverages: fire and allied lines, other liability, automobile, workers' compensation and surety.

Personal Lines Business

Our personal lines consist primarily of automobile and fire and allied lines coverage, including homeowners.

In May 2020, the Company entered into a renewal rights agreement for our personal lines business, providing our

independent insurance agents with the opportunity to transfer their personal lines policies to Nationwide Mutual

Insurance Company beginning in the third quarter of 2020, subject to the receipt of applicable regulatory approvals.

As part of this agreement, Nationwide will offer contracts to all of our personal lines agents across the country, with

the exception of agents in Louisiana and Florida. We are continuing to evaluate our strategic plan for the personal

lines business in Louisiana and Florida.

---

Pricing

Pricing levels for our property and casualty insurance products are influenced by many factors, including an estimation of expected losses, the expenses of producing, issuing and servicing business and managing claims, the time value of money associated with such loss and expense cash flows, and a reasonable allowance for profit. We have a disciplined approach to underwriting and risk management that emphasizes profitable growth rather than premium volume or market share. Our insurance company subsidiaries are subject to state laws and regulations regarding rate and policy form approvals. The applicable state laws and regulations establish standards in certain lines of business to ensure that rates are not excessive, inadequate, unfairly discriminatory, or used to engage in unfair price competition. Our ability to increase rates and the relative timing of the process are dependent upon each respective state's requirements, as well as the competitive market environment.

Seasonality

Our property and casualty insurance business experiences some seasonality with regard to premiums written, which are generally highest in January and July and lowest during the fourth quarter. Although we experience some seasonality in our premiums written, premiums are earned ratably over the period of coverage. Losses and loss settlement expenses incurred tend to remain consistent throughout the year, with the exception of catastrophe losses which generally are highest in the second and third quarters. Catastrophes inherently are unpredictable and can occur at any time during the year from man-made or natural disaster events that include, but are not limited to, hail, tornadoes, hurricanes and windstorms.

Premiums Earned

The following table sets forth our net premiums earned:

Years Ended December 31,			2020						2019						2018
Continuing Operations - Property and casualty insurance business
Net premiums earned
Other liability			$	316,098					$	318,412					$	311,931
Fire and allied lines			277,515						285,205						276,193
Automobile			324,420						345,637						313,521
Workers' compensation			75,953						87,376						95,203
Fidelity and surety			28,001						25,539						24,437
Reinsurance assumed			30,417						21,861						13,228
Other			2,678						2,942						2,938
Total net premiums earned from continuing operations			$	1,055,082					$	1,086,972					$	1,037,451
Discontinued Operations - Life insurance business
Net premiums earned
Ordinary life (excluding universal life)			$	—					$	—					$	7,068
Universal life policy fees			—						—						3,363
Immediate annuities with life contingencies			—						—						2,515
Accident and health			—						—						45
Other			—						—						12
Total net premiums earned from discontinued operations			$	—					$	—					$	13,003

---

The following table sets forth our selected unaudited quarterly financial information:

(In Thousands Except Share Data)
Quarters			First						Second						Third						Fourth						Total
Year Ended December 31, 2020
Total revenues			$	177,805					$	297,803					$	282,121					$	310,898					$	1,068,627
Income (loss) before income taxes			( 104,999 )						4,236						( 55,228 )						( 13,524 )						( 169,515 )
Net income (loss)			$	( 72,534 )					$	5,960					$	( 37,241 )					$	( 8,891 )					$	( 112,706 )
Basic earnings (loss) per share (1)			$	( 2.90 )					$	0.24					$	( 1.49 )					$	( 0.36 )					$	( 4.50 )
Diluted earnings (loss) per share (1)			( 2.90 )						0.24						( 1.49 )						( 0.36 )						( 4.50 )
Year Ended December 31, 2019
Total revenues			$	305,539					$	304,197					$	298,055					$	293,374					$	1,201,165
Income (loss) before income taxes			54,677						( 4,571 )						( 4,528 )						( 28,699 )						16,879
Net income (loss)			$	44,521					$	( 4,196 )					$	( 2,342 )					$	( 23,163 )					$	14,820
Basic earnings (loss) per share (1)			$	1.77					$	( 0.17 )					$	( 0.09 )					$	( 0.93 )					$	0.59
Diluted earnings (loss) per share (1)			1.74						( 0.17 )						( 0.09 )						( 0.93 )						0.58

(1) The sum of the quarterly reported amounts may not equal the full year, as each is computed independently.

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share gives effect to all dilutive common shares outstanding during the reporting period. The dilutive shares we consider in our diluted earnings per share calculation relate to our outstanding stock options and restricted stock awards.

We determine the dilutive effect of our outstanding stock options using the "treasury stock" method. Under this method, we assume the exercise of all of the outstanding stock options whose exercise price is less than the weighted-average market value of our common stock during the reporting period. This method also assumes that the proceeds from the hypothetical stock option exercises are used to repurchase shares of our common stock at the weighted-average market value of the stock during the reporting period. The net of the assumed stock options exercised and assumed common shares repurchased represents the number of dilutive common shares, which we add to the denominator of the earnings per share calculation.

---

The components of basic and diluted earnings per share were as follows:

			Years Ended December 31,
			2020												2019												2018
(In Thousands Except Share and Per Share Data)			Basic						Diluted						Basic						Diluted						Basic						Diluted
Net income (loss) from continuing operations			$	( 112,706 )					$	( 112,706 )					$	14,820					$	14,820					$	2,255					$	2,255
Weighted-average common shares outstanding			25,027,358						25,027,358						25,138,039						25,138,039						25,006,211						25,006,211
Add dilutive effect of restricted stock awards			—						—						—						232,450						—						273,544
Add dilutive effect of stock options			—						—						—						212,038						—						343,057
Weighted-average common shares			25,027,358						25,027,358						25,138,039						25,582,527						25,006,211						25,622,812
Earnings (loss) per common share from continuing operations			$	( 4.50 )					$	( 4.50 )					$	0.59					$	0.58					$	0.09					$	0.09
Earnings (loss) per common share from discontinued operations			—						—						—						—						( 0.08 )						( 0.07 )
Gain on sale of discontinued operations, net of taxes			$	—					$	—					$	—					$	—					$	1.10					$	1.07
Earnings (loss) per common share			$	( 4.50 )					$	( 4.50 )					$	0.59					$	0.58					$	1.11					$	1.08
Awards excluded from diluted calculation (1)			—						618,379						—						63,897						—						2,681

(1) Outstanding awards that are not "in-the-money" are excluded from the diluted earnings per share calculation because the effect of including them would have been anti-dilutive.

The Company determines if a contract contains a lease at inception of the contract by reviewing the facts and circumstances of the contract to determine if a lease is present. The Company has operating leases relating to office space, vehicles, computer equipment, and office equipment, which are recorded as a lease obligation liability disclosed in the "Accrued expenses and other liabilities" line on the Consolidated Balance Sheets and as a lease right-of-use asset disclosed in the "Other assets" line on the Consolidated Balance Sheets. The lease right-of-use asset represents the Company's right to use each underlying asset for the lease term and the lease obligation liability represents the Company's obligation over the lease term. As an accounting policy election, we have elected the practical expedient on not separating lease components from non-lease components to each major asset class.

The Company's lease obligation is recorded at the present value of the lease payments based on the term of the applied lease. The Company has elected to categorize its leases into four categories based on length of lease terms and applies an incremental borrowing rate of interest as of the effective date of adoption or the lease effective date equivalent to a collateralized rate with similar terms. The four categories are as follows: less than three years, three to five years, five to ten years and greater than ten years. The collateralized discount rate used to calculate the present value of future minimum lease payments is based, where appropriate, on the Company's incremental borrowing rate of its credit facility, described in Note 14 "Debt". For leases that existed prior to the adoption of the new accounting guidance on January 1, 2019 or those with terms not similar to the credit facility, the Company has elected to use the remaining lease term based on the four categories noted above as of the date of initial application to measure its incremental borrowing rate. In this case, the incremental borrowing rate is a collateralized rate based on current industry borrowing rates for similar companies with similar ratings.

Lease terms and options vary in the Company's operating leases dependent upon the underlying leased asset. We exclude options to extend or terminate a lease from our recognition as part of our right-of-use assets and lease liabilities until those options are known and/or executed, as we typically do not exercise options to purchase the underlying leased asset. As of December 31, 2020, we have leases with remaining terms of 1 year to 6 years, some of which may include no options for renewal and others with options to extend the lease terms from 6 months to 5 years.

---

The components of our operating leases were as follows:

						As of December 31, 2020			As of December 31, 2019
Components of lease expense:
Operating lease expense						$	7,611		$	7,655
Less sublease income						292			493
Net lease expense						7,319			7,162
Cash flows information related to leases:
Operating cash outflow from operating leases						7,053			7,249

Balance sheet information for operating leases:						As of December 31, 2020			As of December 31, 2019
Operating lease right-of-use assets (Other assets on Consolidated Balance Sheets)						$	18,619		$	15,410
Operating lease liabilities (Accrued expenses and other liabilities on Consolidated Balance Sheets)						19,244			15,851
Right-of-use assets obtained in exchange for new operating lease liabilities						7,264			651
Weighted average remaining lease term						4.36 years			2.75 years
Weighted average discount rate						3.72		%	4.74		%

Maturities of lease liabilities:						As of December 31, 2020			As of December 31, 2019
2021						$	6,889		$	7,517
2022						4,610			5,311
2023						3,627			2,417
2024						1,763			1,318
2025						1,270			259
Thereafter						2,460			39
Total lease payments						20,619			16,861
Less imputed interest						( 1,375 )			( 1,010 )
Lease liability						$	19,244		$	15,851

Long Term Debt

The Company executed a private placement debt transaction on December 15, 2020 between UF&C, and Federated Mutual and Federated Life.

UFG sold an aggregate $ 50,000 of notes due 2040 to the Note Purchasers. One note with a principal amount of $ 35,000 was issued to Federated Mutual and one note with a principal amount of $ 15,000 was issued to Federated Life subject to the terms of their respective notes. The Company incurred $ 24 in debt issuance costs associated with this debt transaction in 2020.

---

Interest payments under the surplus notes will be paid quarterly on March 15, June 15, September 15 and December 15 of each year (each such date, an "Interest Payment Date"). The interest rate will equal the rate that corresponds to the A.M. Best Co. (or its successor’s) financial strength rating for members of the United Fire & Casualty Pooled Group as of the applicable Interest Payment Date, as set forth in the table below. As of December 31, 2020, interest expense totaled $ 133 . Payment of interest is subject to approval by the Iowa Insurance Division.

A.M. Best Co. Financial Strength Rating			Applicable Interest Rate
A+			5.875 %
A			6.375 %
A-			6.875 %
B++ (or lower)			7.375 %

Credit Facilities

On March 31, 2020, UF&C a wholly owned subsidiary of the Company, entered into a credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent (the "Administrative Agent"), issuing lender, swing-line lender and lender, and the other lenders from time to time party thereto (collectively with Wells Fargo, the "Lenders"), providing for a $ 50,000 revolving credit facility, which includes a $ 20,000 letter of credit sub-facility and a $ 5,000 swing-line loan for working capital and other general corporate purposes. The Credit Agreement is provided by the Lenders on an unsecured basis, and the UF&C has the option to increase the Credit Agreement by $ 100,000 if agreed to by the Lenders providing such incremental facility.

The Credit Agreement includes customary events of default, including default in payments of principals, default in payment of other indebtedness, change of control and voluntary and involuntary insolvency proceedings, the occurrence of which would allow the Lenders to accelerate payment of all amounts outstanding thereunder and terminate any further commitments to lend.

The entry into the Credit Agreement was completed as part of the Company’s regular course of financial planning and was not initiated as a result of market conditions resulting from the COVID-19 pandemic.

Prior to February 2, 2020, the Company had a credit agreement (the "Previous Credit Agreement") which it entered into on February 2, 2016. The Company, as borrower, entered into the Previous Credit Agreement with the lenders from time to time party thereto and KeyBank National Association ("Key Bank"), as administrative agent, swingline lender and letter of credit issuer. The Previous Credit Agreement provided for a $ 50,000 four -year unsecured revolving credit facility that included a $ 20,000 letter of credit subfacility and a swingline subfacility in the amount up to $ 5,000 . The Previous Credit Agreement allowed the Company to increase the aggregate amount of the commitments thereunder by up to $ 100,000 .

There was no outstanding balance on either the Credit Agreement or the Previous Credit Agreement at December 31, 2020 or 2019, respectively. As of December 31, 2020, we were in compliance with two of three financial covenants of the Credit Agreement. We have received a waiver from the Lenders on the third financial covenant. We have the ability to draw on our credit facility if needed. We did no t incur any interest expense related to the Credit Agreement in 2020 or under our Previous Credit Agreement in 2019 and 2018.

---

The carrying value of our goodwill was zero at December 31, 2020 and $ 15,091 at December 31, 2019, respectively. During the third quarter of 2020, we completed our annual quantitative analysis of goodwill. As a result of the quantitative analysis, we impaired the remaining balance of our goodwill of $ 15,091 as of September 30, 2020 based on the following factors: (i) disruptions in the equity markets, specifically for property and casualty insurance companies, as a result of the COVID-19 pandemic and due to recent weather related catastrophes; (ii) recent elevated commercial auto loss ratios; and (iii) the fair value of our stock trading significantly below book value. The Company used a weighting of the income and market approaches to determine the fair value of the reporting unit.

Our major classes of intangible assets are presented in the following table:

			Year Ended December 31,
			2020						2019
Agency relationships			$	10,338					$	10,338
Accumulated amortization - agency relationships			( 7,307 )						( 6,731 )
			$	3,031					$	3,607
Software			$	3,260					$	3,260
Accumulated amortization - software			( 3,260 )						( 3,260 )
			$	—					$	—
Trade names			$	1,978					$	1,978
Accumulated amortization - trade names			( 1,286 )						( 1,154 )
			$	692					$	824
Favorable contract			$	286					$	286
Accumulated amortization - favorable contract			( 286 )						( 286 )
			$	—					$	—
State insurance licenses (1)			$	3,020					$	3,020
Net intangible assets			$	6,743					$	7,451

(1) The intangible asset for licenses has an indefinite life and therefore is not amortized.

The estimated useful lives assigned to our major classes of amortizable intangible assets are as follows:

			Useful Life
Agency relationships			Fifteen years
Software			Two years
Trade names			Fifteen years
Favorable contract			Two years

Our estimated aggregate amortization expense for each of the next five years is as follows:

2021			$	709
2022			709
2023			709
2024			709
2025			709

---

The following table shows the changes in the components of our accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 2020, 2019 and 2018:

									Liability for
			Net unrealized						underfunded
			appreciation						employee
			on investments						benefit costs						Total
Balance as of January 1, 2018			$	214,865					$	( 46,551 )					$	168,314
Cumulative effect of change in accounting principle			( 191,244 )						—						( 191,244 )
Change in accumulated other comprehensive income before reclassifications			( 33,564 )						20,155						( 13,409 )
Reclassification adjustments from accumulated other comprehensive income			620						5,247						5,867
Balance as of December 31, 2018			$	( 9,323 )					$	( 21,149 )					$	( 30,472 )
Change in accumulated other comprehensive income before reclassifications			55,399						( 16,530 )						38,869
Reclassification adjustments from accumulated other comprehensive income			1,203						3,552						4,755
Balance as of December 31, 2019			$	47,279					$	( 34,127 )					$	13,152
Change in accumulated other comprehensive income before reclassifications			37,173						14,580						51,753
Reclassification adjustments from accumulated other comprehensive income			( 1,382 )						3,388						2,006
Balance as of December 31, 2020			$	83,070					$	( 16,159 )					$	66,911

---

On September 18, 2017, we signed a definitive agreement to sell our subsidiary, United Life Insurance Company, to Kuvare for $ 280,000 in cash, less a $ 21 adjustment as set forth in the definitive agreement, for a net amount of $ 279,979 . The sale closed on March 30, 2018 and we reported an after-tax gain on the sale of discontinued operations of $ 27,307 . The life insurance business (previously reported as a separate segment) was considered held for sale and reported as discontinued operations and its financial position, results of operations and cash flows were reported separately for all periods presented, as applicable, unless otherwise noted.

UFG agreed to provide services to Kuvare through a transition services agreement ("TSA"). The TSA included, among other considerations, accounting management, human resources, legal and information technology services, from the closing date for up to 24 months. The TSA ended as scheduled on March 30, 2020. The Company received a total of $ 1,019 as p art of the TSA.

Summary operating results of discontinued operations were as follows for the periods indicated:

Discontinued Operations
Statements of Income
			For the Years Ended December 31,
(In Thousands, Except Share Data)			2020						2019						2018
Revenues
Net premiums earned			$	—					$	—					$	13,003
Investment income, net of investment expenses			—						—						12,663
Total net realized investment gains (losses)			—						—						( 1,057 )
Other income			—						—						146
Total revenues			$	—					$	—					$	24,755
Benefits, Losses and Expenses
Losses and loss settlement expenses			$	—					$	—					$	10,823
Increase in liability for future policy benefits			—						—						5,023
Amortization of deferred policy acquisition costs			—						—						1,895
Other underwriting expenses			—						—						3,864
Interest on policyholders’ accounts			—						—						4,499
Total benefits, losses and expenses			$	—					$	—					$	26,104
Income (loss) from discontinued operations before income taxes			$	—					$	—					$	( 1,349 )
Federal income tax expense			—						—						563
Net income (loss) from discontinued operations			$	—					$	—					$	( 1,912 )
Earnings (loss) per common share from discontinued operations:
Basic			$	—					$	—					$	( 0.08 )
Diluted			—						—						( 0.07 )

---

---

---

---

---

---

---

---

---

---

---

---

---

Schedule I. Summary of Investments — Other than Investments in Related Parties

December 31, 2020			(In thousands)
			Cost or Amortized Cost												Amounts at Which Shown in Balance Sheet
Type of Investment									Fair Value
Fixed maturities
Bonds
United States Government and government agencies and authorities			$	209,983					$	214,456					$	214,456
States, municipalities and political subdivisions			824,545						884,700						884,700
Foreign governments			27,799						29,602						29,602
Public utilities			76,114						83,502						83,502
All other bonds			581,850						613,183						613,178
Redeemable preferred stock			—						—						—
Total fixed maturities			$	1,720,291					$	1,825,443					$	1,825,438
Equity securities
Common stocks
Public utilities			$	3,760					$	16,320					$	16,320
Banks, trusts and insurance companies			7,853						69,577						69,577
Industrial, miscellaneous and all other			36,877						120,193						120,193
Nonredeemable preferred stocks			595						595						595
Total equity securities			$	49,085					$	206,685					$	206,685
Mortgage loans on real estate			$	47,690					$	48,932					$	47,614
Other long-term investments			73,820						69,305						69,305
Short-term investments			175						175						175
Total investments			$	1,891,061					$	2,150,540					$	2,149,217

---

Schedule II. Condensed Financial Statements of Parent Company

United Fire Group, Inc. (parent company only)

Condensed Balance Sheets

			December 31,
(In thousands, except share data)			2020			2019
Assets
Fixed maturities
Available-for-sale, at fair value (amortized cost $ 150 in 2020 and $ 150 in 2019)			$	150		$	150
Investment in subsidiary			818,581			880,485
Cash and cash equivalents			6,504			29,878
Other assets			15			3
Total assets			$	825,250		$	910,516
Liabilities and stockholders' equity
Liabilities			$	101		$	44
Stockholders' equity
Common stock, $ 0.001 par value, authorized 75,000,000 shares 25,055,479 and 25,015,963 issued and outstanding in 2020 and 2019, respectively			$	25		$	25
Additional paid-in capital			202,359			200,179
Retained earnings			555,854			697,116
Accumulated other comprehensive income, net of tax			66,911			13,152
Total stockholders' equity			$	825,149		$	910,472
Total liabilities and stockholders' equity			$	825,250		$	910,516

This condensed financial information should be read in conjunction with the Consolidated Financial Statements and Notes included in Part II, Item 8 of this Annual Report on Form 10-K.

---

Schedule II. Condensed Financial Statements of Parent Company (continued)

United Fire Group, Inc. (parent company only)

Condensed Statements of Income and Comprehensive Income

			For the Years Ended December 31,
(In thousands)			2020			2019			2018
Revenues
Investment income			$	141		$	295		$	396
Total revenues			141			295			396
Expenses
Other operating expenses			$	10		$	86		$	95
Total expenses			10			86			95
Income before income taxes and equity in net income of subsidiary			131			209			301
Federal income tax expense (benefit)			68			44			( 1,165 )
Net income before equity in net income (loss) of subsidiary			$	63		$	165		$	1,466
Equity in net income (loss) of subsidiary			( 112,769 )			14,655			26,184
Net income (loss)			$	( 112,706 )		$	14,820		$	27,650
Other comprehensive income (loss)
Change in unrealized appreciation on investments held by subsidiary			$	47,054		$	70,127		$	( 50,985 )
Change in liability for underfunded employee benefit plans of subsidiary			18,456			( 20,924 )			25,513
Other comprehensive income (loss), before tax and reclassification adjustments			$	65,510		$	49,203		$	( 25,472 )
Income tax effect			( 13,757 )			( 10,334 )			5,349
Other comprehensive income (loss), after tax, before reclassification adjustments			$	51,753		$	38,869		$	( 20,123 )
Reclassification adjustment for net realized gains of the subsidiary included in income			( 1,750 )			1,521			784
Reclassification adjustment for employee benefit costs of the subsidiary included in expense			4,289			4,497			6,642
Total reclassification adjustments, before tax			$	2,539		$	6,018		$	7,426
Income tax effect			( 534 )			( 1,263 )			( 1,559 )
Total reclassification adjustments, after tax			$	2,005		$	4,755		$	5,867
Comprehensive income (loss)			$	( 58,948 )		$	58,444		$	13,394

United Fire Group, Inc. and its subsidiaries file a consolidated federal income tax return. The federal income tax provision represents an allocation under its tax allocation agreements.

This condensed financial information should be read in conjunction with the Consolidated Financial Statements and Notes included in Part II, Item 8 of this Annual Report on Form 10-K.

---

Schedule II. Condensed Financial Statements of Parent Company (continued)

United Fire Group, Inc. (parent company only)

Condensed Statements of Cash Flows

			For the Years Ended December 31,
(In thousands)			2020			2019			2018
Cash flows from operating activities
Net income (loss)			$	( 112,706 )		$	14,820		$	27,650
Adjustments to reconcile net income to net cash provided by operating activities
Equity in net income of subsidiary			112,769			( 14,655 )			( 26,184 )
Dividends received from subsidiary			4,000			57,000			105,000
Other, net			3,907			5,512			1,824
Total adjustments			$	120,676		$	47,857		$	80,640
Net cash provided by operating activities			$	7,970		$	62,677		$	108,290
Cash flows from investing activities
Net cash used in investing activities			$	—		$	—		$	—
Cash flows from financing activities
Payment of cash dividends			$	( 28,532 )		$	( 32,662 )		$	( 105,408 )
Repurchase of common stock			( 2,741 )			( 11,700 )			( 5,404 )
Issuance of common stock			( 71 )			2,377			7,171
Net cash used in financing activities			$	( 31,344 )		$	( 41,985 )		$	( 103,641 )
Net change in cash and cash equivalents			$	( 23,374 )		$	20,692		$	4,649
Cash and cash equivalents at beginning of period			29,878			9,186			4,537
Cash and cash equivalents at end of year			$	6,504		$	29,878		$	9,186

This condensed financial information should be read in conjunction with the Consolidated Financial Statements and Notes included in Part II, Item 8 of this Form 10-K.

---

Schedule III. Supplementary Insurance Information

(In thousands)			Deferred Policy Acquisition Costs						Future Policy Benefits, Losses, Claims and Loss Expenses						Unearned Premiums						Earned Premium Revenue						Investment Income, Net						Benefits, Claims, Losses and Settlement Expenses						Amortization of Deferred Policy Acquisition Costs						Other Underwriting Expenses						Interest on Policyholders' Accounts						Premiums Written (2)
Year Ended December 31, 2020
Continuing Operations			$	87,094					$	1,578,131					$	464,845					$	1,055,082					$	39,670					$	869,467					$	210,252					$	143,332					$	—					$	1,011,350
Discontinued Operations (1)			—						—						—						—						—						—						—						—						—						—
Total			$	87,094					$	1,578,131					$	464,845					$	1,055,082					$	39,670					$	869,467					$	210,252					$	143,332					$	—					$	1,011,350
Year Ended December 31, 2019
Continuing Operations			$	94,292					$	1,421,754					$	505,162					$	1,086,972					$	60,414					$	830,172					$	216,199					$	137,415					$	—					$	1,096,730
Discontinued Operations (1)			—						—						—						—						—						—						—						—						—						—
Total			$	94,292					$	1,421,754					$	505,162					$	1,086,972					$	60,414					$	830,172					$	216,199					$	137,415					$	—					$	1,096,730
Year Ended December 31, 2018
Continuing Operations			$	92,796					$	1,312,483					$	492,918					$	1,037,451					$	52,894					$	731,611					$	206,232					$	141,473					$	—					$	1,061,664
Discontinued Operations (1)			—						—						—						13,003						12,663						15,846						1,895						3,864						4,499						—
Total			$	92,796					$	1,312,483					$	492,918					$	1,050,454					$	65,557					$	747,457					$	208,127					$	145,337					$	4,499					$	1,061,664

(1) Annuity deposits are included in future policy benefits, losses, claims and loss expenses .

---

Schedule IV. Reinsurance

(In thousands)			Gross Amount						Ceded to Other Companies						Assumed From Other Companies						Net Amount						Percentage of Amount Assumed to Net Earned
Year Ended December 31, 2020
Premiums earned
Property and casualty insurance			$	1,106,327					$	84,924					$	33,679					$	1,055,082					3.19		%
Year Ended December 31, 2019
Premiums earned
Property and casualty insurance			$	1,133,583					$	72,023					$	25,412					$	1,086,972					2.34		%
Year Ended December 31, 2018
Premiums earned
Property and casualty insurance			$	1,083,981					$	63,487					$	16,957					$	1,037,451					1.63		%

---

Schedule V. Valuation And Qualifying Accounts

(In thousands)			Balance at beginning of period						Charged to costs and expenses						Deductions						Balance at end of period
Description
Allowance for bad debts
Year Ended December 31, 2020			$	1,239					$	—					$	552					$	687
Year Ended December 31, 2019			785						454						—						1,239
Year Ended December 31, 2018			1,255						—						470						785
Deferred tax asset valuation allowance (1)
Year Ended December 31, 2020			$	—					$	—					$	—					$	—
Year Ended December 31, 2019			—						—						—						—
Year Ended December 31, 2018			329						—						329						—

(1) Recorded in connection with the purchase of American Indemnity Financial Corporation in 1999 .

---

Schedule VI. Supplemental Information Concerning Property and Casualty Insurance Operations

(In thousands)
Affiliation with Registrant: United Fire & Casualty Company and consolidated property and casualty subsidiaries																																							Claims and Claim Adjustment Expenses Incurred Related to:												Amortization of Deferred Policy Acquisition Costs
									Reserves for Unpaid Claims and Claim Adjustment Expenses																		Net Realized Investment Gains (Losses)
			Deferred Policy Acquisition Costs																														Net Investment Income																								Paid Claims and Claim Adjustment Expenses
															Unearned Premiums						Earned Premiums																		Current Year						Prior Years																		Premiums Written
2020			$	87,094					$	1,578,131					$	464,845					$	1,055,082					$	( 32,395 )					$	39,670					$	887,119					$	( 17,652 )					$	210,252					$	776,397					$	1,011,350
2019			$	94,292					$	1,421,754					$	505,162					$	1,086,972					$	53,779					$	60,414					$	835,507					$	( 5,335 )					$	216,699					$	732,343					$	1,096,730
2018			$	92,796					$	1,312,483					$	492,928					$	1,037,451					$	( 20,179 )					$	52,894					$	785,778					$	( 54,167 )					$	206,232					$	640,534					$	1,061,664

---

---

---